MarketWatch 666

taxes, SOPA, keystone XL, the great gatsby curve, et al, week ended Jan 21st

2012-01-22T17:08:00.001-08:00

it was a bit of a weird week, because a number of the stories which garnered the most press & posting fell out of the purview of what i'd normally cover; namely the saber rattling with iran, the internet protest against the "stop online piracy act"(SOPA), and election year politics, & most specifically the tax situation of mitt romney, who admitted that only he paid around 15% taxes on proceeds from his vulture capital ventures, which precipitated a feeding frenzy in the left econ blogosphere as dozens of posts were produced showing how the wealthiest americans only paid a maximum of 15% tax on capital gains (paul krugman mustve had a half dozen posts on it all by himself), or less tax than those making $34,000; sadly, its all been said before, several times, in several contexts, ie, by warren buffett, who noted that his secretary was taxed at a higher rate, and by others in regards to the top 25 hedge fund earners who garnered $22.07 billion in 2010, and who by virtue of the special treatment of their earnings, paid taxes at a lower rate than the typical middle class household...anyhow, all of this rehashing did bring back an old graph of interest, which is included here to the right, showing effective tax rates for certain ranges of income, from those below $34,390, who average a 6.7% tax rate, to the 4 high bars of incomes between $74,700 and $345 million who all pay an average around 21% of their income in taxes, to the 400 richest households, who all take in more than $345,000,000 yet pay only 16.6%, less that the rest of the high brackets...

even if you werent online wednesday, i imagine you heard something about the protest against SOPA & its senate sister PIPA, as most news outlets at least gave mention to the fact that wikipedia had shut down (you can read the Wikimedia press release here)... the two bills had their origins with the music & movie industries, who wanted to stop pirated downloading of their works...but the bill was so all inclusive that it would also hold liable not only those who copy copywritten material (like yours truly), but also website owners such as facebook & wikipedia where the public might post such material, & even anyone who linked to such a site, and also would effectively require every blog administrator to police his comment section for such material posted by anonymous outsiders...those in violation could have their IP addresses blocked, or would no longer be recognized by their domain name servers (ie, www.google.com would no longer get to google)...as a result of the protest over 100 websites shut down (list here), most linking users to a petition to be sent to congresscritters & the administration...by thursday key congressional sponsors of SOPA abandoned the bill, and at least 18 senators withdrew their support from PIPA...but dont be surprised if it comes back in another form, as most in congress still believe in possession of ideas & ownership of thoughts, and the independent power of the internet runs counter to the ongoing attempts to impose a police state in this country...

you might recall the Treasury’s 3rd request to raise the debt ceiling, a provision of the 'debt control act', was withdrawn over the holidays to allow congress to lodge their protest votes; as a result of the delay, the borrowing limit was approached this week, which necessitated the same kind of accounting gimmickry we saw last august; on tuesday, the Treasury started dipping into federal pension funds in order pay government bills, while waiting the mandatory 15 days for congress to weigh in on the debt limit increase; even if they would attempt block it, obama could veto that, so this should be resolved by next week…in addition to the payroll tax cut, unemployment rations & the doc fix, which were only extended till february, congress will also likely be taking up roughly four dozen other temporary tax cuts that expired at the end of last year…

most of you have probably also heard that the Obama administration turned down the permit to build the Keystone XL pipeline this wednesday, an action forced by the congressional attachment of a 60 day deadline on it to the year end bill which extended the payroll tax cut and unemployment insurance; although the decision is already being used politically, there was really no alternative to denying the permit at this time; approval of the original pipeline route was delayed in part because it would cross over the permeable nebraska sandhills, putting at risk the ogallala aquifer, the water source for parts of 8 states, a very real possibility since the Keystone XL's leak detection system would not register spills less than 700000 gallons per day (1.5-2% of its capacity)...there is no reason to hurry to complete this pipeline now; we've crapped up enough of this country (& the planet) already without rushing helter skelter headlong into a 1700 mile pipeline across the some of the most sensitive landscape in the country... make no mistake, every drop of oil from the alberta tar sands will eventually be exploited, and this pipeline &/or others from alberta will be built...they will be built because all of us continue to put gas in our cars, continue to purchase food which is shipped half way across the county (if not halfway around the world), and those who exploit the oil will continue to be driven by our dependence; furthermore, the oil will be extracted because even those who protest the pipelines drive or fly to the protests in conveyances run on petroleum distillates...like it or not, civilization as we know it is dependant on oil, and the planet is running out...but i am not in the "drain america first" camp on energy policy; our future energy security is best served by leaving what oil we have in the ground...since oil will become scarcer & more difficult & expensive to extract, as long as this country can get relatively cheap oil shipped to us from overseas in exchange for our fiat currency we should do so, the oil we have within our borders is better than money in the bank, because it will only become more valuable as easy to exploit fields are depleted...

so, this decision to reject the pipeline route is already being used politically to accuse obama of costing the country jobs during a time of high employment...supposed numbers being bantered around by the right wing talkers are that the pipeline would employ range from 20,000, which was the number claimed by pipeline’s owner TransCanada, to more than 250,000 jobs claimed by the US Chamber of Commerce...putting aside the obvious contradiction voiced by those who say government spending on infrastructure doesnt create jobs but oil pipeline company spending on infrastructure does, an earlier study on jobs created by the construction of the keystone pipeline by the Cornell University Global Labor Institute (40 pp pdf) indicated there would only be between 500 and 1400 temporary construction jobs for americans, & only 50 full time long term jobs, because the other jobs would be taken by those canadians already employed by TransCanada, the company that will be building the pipeline...if we want to create jobs in energy infrastructure, we would be better served by starting the move to renewables such as wind and solar, as other wise nations are doing; belgium, germany & switzerland are building renewables & phasing out their nukes; both denmark & portugal already have significant wind power, and scotland is well on their way to being 100% renewable energy by 2020…even oil rich countries such as dubai & the arab emirates are building significant solar installations...

there were a handful of economic reports out this week worth mentioning…according to the NAR, sales of previously owned homes rose 5% in december over sales in november on a seasonally adjusted basis; the 3rd consecutive monthly gain; on the other hand, the census reported that housing starts declined 4.1% in december to 657,000, again a seasonally adjusted rate; although that’s nearly 25% above the rate of last december, we will still end 2011 with the least total new homes completed since the census started tracking completions in the '60s…industrial production rose 0.4% in december, which is a better number than apparent considering that utilities output fell 2.7% due to unusually warm weather; the same report from the Fed showed the capacity utilization rate for total industry rose to 78.1%, which means over 20% of our industrial capacity is still idle, which means tax cuts to spur investment will be just about useless…intermodal rail traffic was up 7.4% for the week, so the decline in the 1st week of january appears to have been noise…and the CPI inflation rate was virtually unchanged, as declining gas prices offset higher prices for other items…next month will likely reverse that trend, since gas prices have been rising for 4 weeks in a row, mostly due to iranian tensions…

ever since OWS & the 99% woke up the economists, there have been a plethora of posts & papers on the degree that inequality has become a problem in this country over the last three decades...this week was no exception; what garnered the most attention was a graph produced during a speech by Alan Krueger, the chairman of the obama's economic advisors, which for reasons beyond me he dubbed the great gatsby curve…what the chart shows for several countries on the horizontal axis is the Gini coefficient, a widely recognized measure of a society’s inequality, wherein 0 is complete income equality, ie, everyone is paid the same, and 1 would be a hypothetical country where one person earns all the income…the vertical axis shows a measure of intergenerational mobility, which is the relationship between one’s relative income and that of his or her parents; in this, zero means a country would have equality of opportunity; ie, the offspring of the poor can earn as much as the kids of the rich; a score of 1 means relative income of the offspring of each generation would be exactly equal to that of its parents, in other words, would have no opportunity to advance past that of its parent’s class…what krueger is showing is that not only are we the most unequal of the countries graphed, which we already knew, but that there is a correlation between inequality and intergenerational mobility, such that among the wealthier countries of the world, the US is the one which affords it’s children with the least opportunity to advance…

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2012-01-18T05:31:00.001-08:00

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notes on housing policy & other econ news, week ended Jan 14th

2012-01-15T15:08:00.001-08:00

there have been a few papers & pronouncements on housing policy & the mortgage crisis over the past few weeks, so maybe its worth taking a look at what's been advised & proposed, & what among all that may actually come to fruition...the catalyst for a lot of this seemed to be a 26-page white paper (pdf) from the Fed that first made the news on the 4th, although subsequent announced actions by other agencies may have been co-incidental...the Fed appears to have finally realized that not much they have attempted to do to alleviate the mortgage crisis, whether it be plain vanilla quantitative easing, direct buying of MBS (mortgage backed securities), or the lowering of long term interest rates by their "Twist" operations has produced results, so the paper was directed to the financial services committees in both houses of congress, suggesting policy changes to be initiated by them or by the administration, which is a move fraught with peril, as the Fed is already being accused of meddling in matters fiscal...out of the dozen initiatives they suggested, the one that seems to have received the most attention has been the proposal to convert the significant inventory of REO (real estate owned) by the GSEs (Fannie & Freddie) and FHA into rental units...since we're talking something on the order of a quarter million homes that are in effect owned by government agencies, it would mean unloading a lot of properties relatively quickly...this would be done by bulk sales of such houses so that investors could obtain "geographically proximate properties to achieve efficiencies of scale" ...a similar proposal was made that would allow banks to rent properties rather than sell them that could in effect turn them into landlords...while there is a developing shortage of rental apartments (the 5.2% vacancy rate is now as low as it was in 2001), one wonders if this would be just another program create risk free opportunities for the well-connected elites & socialize any losses...maybe its entirely coincidental, but yesterday it was reported that Philip Angelides, former chair of the FCIC, has just formed a company to buy distressed mortgages, promising to use "legal and political leverage" to acquire the loans could generate a 20 percent annual return for investors...

the release of that Fed white paper was followed by a number of speeches on housing policy by Fed officials that went further than the housing proposals sent to congress; most notable among them was NY Fed president dudley's suggestion to allow principle writedowns, for which homeowners would give up rights to any future capital gains, and Fed Board Governor Sarah Bloom Raskin's speech recommending the Fed & other regulators impose penalties on mortgage servicers for deficiencies that resulted in "unsafe & unsound practices", which apparently is Fed speak for the widespread robosigning & document fabrication in foreclosure proceedings...

among other housing policy initiatives, Fannie Mae will now require mortgage servicers to provide at least 6 months and up to a year’s relief to homeowners who have become unemployed; the FHFA, which supervises fannie & freddie, is starting to initiate some changes to HARP to allow homeowners with GSE loans and with negative equity who are current on their mortgages to refinance at lower interest rates, which co-incidentally hit new lows this week at 3.89% for a 30 year fixed mortgage, & 3.16% for a 15 year fixed; the CFPB put out a 20 page guidebook instructing its examiners on procedures to crack down on non-bank lenders who are in violation of consumer protection laws, & the justice department got on the bandwagon by calling for more funding and support for state foreclosure mediation programs…

the so called “50 state” mortgage settlement that the administration has been pushing also hit a pretty big bump this week, as at least a dozen state attorney generals started holding separate talks on how they could jointly investigate and potentially file lawsuits against abusive mortgage lenders and fraudulent servicers; joining prosecutors from NY, Delaware, California, & Mass were attorney generals from Hawaii, New Hampshire, Missouri, Mississippi, Maryland, Kentucky and Minnesota, with rumors that Colorado & Oregon might also join this breakaway group…obviously, with attorneys representing about a third of the US mortgage market now out of the national settlement, the immunity from future liability & prosecution the banks had hoped would come out a national settlement has gone by the boards…

there wasnt any clear direction discernable from the hodgepodge of reports that came out this week, which in each case surprised economists by reversing previous trends...we’ll start by looking at the november consumer credit report from the Fed, which showed a seasonally adjusted 9.9% rise over the october report, which was the biggest surge in consumer borrowing in 11 years; and it wasnt just people pulling out the plastic to charge black friday purchases, either, because although revolving credit was up the most in years at +8.5%, the real strength in this report was in non-revolving credit, which included longer term loans for cars, mobile homes, yachts, education, et al, which was up a seasonally adjusted 10.7%…although the financial press all thought it was great to see consumers spending, it was borrowing beyond our means was the problem that got us here…it’s still hard to guess what to make of this isolated report, because these credit numbers had been negative through 2009 & 2010, and had seen relatively modest increases in previous months this year…which leads us to the december retail sales report from the commerce dept (pdf)…total sales for the month were anemic, rising only a seasonally adjusted 0.1% (±0.5%) over november sales, but the weakness was especially pronounced in the types of sales that december is known for; there was a 0.8% decline in general merchandise, including a 0.2% decline in sales at department stores…while building material sales increased 1.6%, sales at electronic stores were off 3.9%, & even online sales fell 0.4%…so excluding a 1.5% gain in car sales, and a 1.7% increase in gasoline purchases, retail sales for the month actually fell 0.2% from november’s levels…YoY data looked a bit better; this december’s sales were up 6.5% (±0.7%) from those of december 2010...it’s important to recognize that these reported numbers are all nominal sales, & dont allow for price increases…so while most analysts are reporting sales up from the precession high, when the effects of inflation are taken into account, sales are still well off the peak…the above chart, from d.short at advisor perspectives, shows per capita retail sales adjusted for inflation; by that metric, sales are still 7% below their 2006 high (click for a larger image)…in the same post he includes a similar chart stripping gasoline sales out, & sans gas, retail sales are still 8.7% off the peak…according to demographer Harry Dent, we may be heading into a new paradigm for retail as well; Dent's website includes a PDF file illustrating the buying habits of households by the age of the head of household for about 240 different product categories; and according to his analysis, the aging of the boomers means that we’ve passed what he has identified at the peak spending years of those 45 to 50 years old...

to look at some other economic data points from this week, the Ceridian-UCLA diesel fuel index for december showed a gain of 0.2%, the third positive month in a row for this index, but still not high enough to offset weakness in trucking this past summer; for the 1st week in january, rail traffic was down -9.3% while carloads declined -3.7%.; what we’re talking about here are significant declines of 20% in shipments of grain and 17% in steel scrap…the other major report out this week was for the trade deficit for november, which surprised to the upside at $47.8 billion, up from $43.3 billion in october; major factors in this gap were higher oil prices, which averaged $102.50 in november, and a 6.9% decline in exports to europe…

the facade of stability that european leaders had achieved after a series of december summits and the agreement to rewrite their treaty to insure austerity shattered on friday after S&P downgraded france and 8 other european countries; italy, portugal, cyprus and spain were downgraded by 2 notches, leaving portuguese & cypriot debt at a junk level, & austria, france, malta, slovakia & slovenia were cut by 1 notch each…as S&P explained “Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone."...with both france & austria cut from AAA to AA, the bonds of the European Financial Stability Facility (EFSF) which they back, are almost certainly to be cut to AA as well, making the proposed leveraging of that bailout fund well nigh impossible…and the downgrades werent the only bad news; talks between Greece & its consortium of creditor banks also broke off on friday, increasing the likelihood of a greek default; the market responded by pushing rates on one year greek debt to 408%...meanwhile, Fitch warned that if Italy didnt solved it's debt refunding the collapse of the euro would be "cataclysmic", & btw, those overnight deposits by eurozone banks have continued to set new records almost every day during the past two weeks, indicating that despite the best efforts of the Fed & the ECB, the european banking system is still far from being out of the woods...

notes on Dec unemployment, LPS’s mortgage monitor, ohio’s fracking quakes, & arctic methane

2012-01-08T17:39:00.001-08:00

we'll start talking about the December unemployment report by reminding everyone what we had learned when we looked at the BLS technical notes, and most specifically, that "the confidence interval for the monthly change in total nonfarm employment from the establishment survey is on the order of plus or minus 100,000" -- just so you know when i parrot the numbers in this month's BLS employment report, or any government report for that matter, we have to realize that these apparently exact numbers are really no more than broad approximations taken from a small incomplete sampling, and that the subsequent revisions 2 months from now will be more accurate than these widely reported numbers...that said, from the broader establishment survey, BLS reports that 200,000 non farm payroll jobs were added in December, with 212,000 private sector job gains offset by the loss of 12,000 government jobs…the areas where we saw the largest job gains were transportation and warehousing (+50,000) and retail (+28,000), which brings us to our first caveat, as 42,000 of those were couriers and messengers, such as UPS drivers, which may mean we’ll lose most of those jobs next month….understand that December’s report is already seasonally adjusted, so what this is telling us is that there were 42,000 more couriers added than in previous decembers; on an unadjusted basis, there was a net gain of 718,500 retail jobs, on par with pre-recession decembers, which may hint that this month’s seasonal adjustment is skewed by lousy the decembers in 2008 & 2009; other strong sectors this month were hires in health care and “mining” which must include oil & gas…for the entire year, we’ve gained 1,640,000 jobs, which barely keeps up with the increase in the working age population; even at this month’s pace, it wouldnt be until well after romney’s second term that we’d restore full employment …according to the smaller household survey, from which the widely reported unemployment percentage is calculated, the number of employed rose 176,000, the civilian labor force fell 50,000 (remember, those who give up are no longer counted) and unemployment fell by 226,000 as the number of those not in the labor force rose by 194,000, giving us an unemployment rate of 8.5% for december; U-6, which includes part-time workers who want full time jobs. fell from 15.6% to 15.2%; BLS also noted the household survey data is revised using updated seasonal adjustment factors at the end of each calendar year, which changed november’s rate from 8.6% to 8.7%, and other reports this year by 0.1% or less…the average workweek increased 0.1 hour to 34.4 hours with this report, and average hourly earnings increased 0.2% to $23.24; the 2 metrics that give us a better picture of how we’re doing, the labor force participation rate at 54.0% (adjacent chart) & the employment population ratio at 58.5%, were both unchanged this month; & the average length of unemployment is now 40.8 weeks, 2nd highest ever…the chart at the top shows the number of the unemployed who’ve been out of work for 27 weeks or more & still want a job; which is still unreal at 5,588,000 of us; noteworthy because the unemployment rations were only extended until febraury, & congress will be holding these people hostage when it returns to negotiate with the administration for a full year payroll tax cut extension…

LPS (lender processing services) reported this week on delinquent mortgages & those in foreclosure for November with somewhat of a strange lede: “the trend toward fewer loans becoming delinquent, which dominated 2010 and the first quarter of 2011, appears to have halted”; if we untangle that, its apparent that what they’re saying is more homeowners havent been paying on their mortgages since april than were previously…the total homeowners delinquent or in foreclosure for the month was 6,260,000, of which 2,330,000 loans were less than 90 days delinquent, 1,810,000 loans were over 90 days delinquent, and 2,210,000 homes were in the foreclosure process…given as a delinquency rate, 8.15% of mortgagees, or about 1 in 12 were not paying on their mortgages and had not yet been foreclosed on; an additional 4.16% of homeowners were in the foreclosure process…foreclosure starts dropped sharply in november, down nearly 30 percent from october, which if you recall set a record as BofA nearly doubled their pace for the month...42% of those who were in foreclosure had been there for more than 24 months without action, up from 40% last month, which another new record; i couldnt find the exact average number of days that homes in foreclosure had gone without making a house payment in either the press release or the report (PDF) but extrapolating from the data given & their charts i’m guessing that also set a new record of around 645 days…as we’ve noted many times previously, mortgage servicers in those states which have have a judicial foreclosure process take considerably longer to foreclose, because for the most part they can’t prove they have that right because they either failed to record mortgage assignments &/or lost track of who owned the note during the securitization process; as of this report, foreclosure inventories in judicial states remained over 2 and a half times that of non-judicial states…their chart included here shows that; this is what they call the “pipeline ratio”, or the number of months it would take to clear the foreclosure backlog in a given state at that state’s current foreclosure rate; red are selected non judicial states; blue are judicial states; if you click on it you see that at the current rate, it would take 709 months to finish the foreclosure process in new york, and 669 months to clear new jersey…in other words, both states have a foreclosure backlog of more than 50 years..

i'm going to revisit the fracking / earthquake connection again this week, in part because this time it happened in my backyard...most of you should remember my drawing a connection between the early november swarm of record earthquakes in oklahoma & the fracking that was being done in the woodford shale in the months preceding them; however, all the evidence i presented was circumstantial, ie, the series of quakes were all at the same depth in the same area where the woodford shale gas play was being worked and the toxic wastewater was being injected into disposal wells into the bedrock...this time, geologists have a smoking gun definitively connecting the quakes to a specific injection well by seismograph readings being taken at several locations nearby...when the news broke on new years eve of a 4.0 earthquake in mcdonald ohio, just NW of youngstown and about 25 miles southwest of my location, both local & national news stories immediately made the connection between fracking and the quake, as it was the 11th in a series of minor quakes at the same location, and an investigation was already underway; John Armbruster, a Columbia University seismologist, had installed 4 seismometers at the state’s request around the site of the site of the injection well where 9 earthquakes had occurred earlier in the past year…so he was able to pinpoint with 95% accuracy (which is as good as its gets) that the 2.4 christmas eve quake and the 4.0 dec 31st quake were within 100 meters of each other, and within 0.8 kilometer of the injection well (see picture) and at the same depth where fluids had been injected…subsequently, the Ohio Dept of Natural Resources and the EPA closed the 4 injection wells in the vicinity, & ohio governor john kasich, who had been a promoter of the gas industry such that Ohio had invited pennsylvania drillers to use Ohio for waste disposal, spent most of the past week backpedalling faster than a clown on a unicycle…btw, this isnt the first time ive been on top of an injection well earthquake; in 1986 there was a 4.9 quake about 25 miles north of here that caused the evacuation of the perry nuclear power plant; which also cracked my chimney…as i was at the time marginally involved with the locals & environmentalists who opposed the 2nd plant at perry (the 345KV transmission corridor would have come close enough for the towers to cast a shadow on my house), i was told privately, off the record, by both a seismologist & by my congressman that they thought the perry nuclear quake was manmade, but it seemed so far fetched at the time that no one was willing to go public with it…

so, with the injection of toxic wastewater now clearly implicated as the cause of earthquakes, in some cases as large as Richter 5.6, the question now becomes is what does one do with the one to five million gallons of frack water per well that has been contaminated by hundreds of toxic chemical additives? any process to treat the water would probably make it too expensive to drill using that method…the other alternative would be pretty expensive too; a thorough seismic survey to check the bedrock for potential slip strike faults below where fluid would be disposed of could help detect quake prone areas, but it would cost around $10 million per injection well…since the actual cost of producing gas is already a couple dollars more per kcf than the glutted market is paying for it, we may be at the point where the gas well investment bubble goes the way of the dot.com bubble, & all the get rich quick pipedreams of exporting gas go up in smoke...

there’s something else that was sent to me this week i want to call your attention to; below are three earth projections from an arctic view which show methane levels in the atmosphere in the northern hemisphere, from november 2002, 2010, and 2011 (their source was from a comment on a climate blog)...the colors are concentrations of methane as shown by the bar at the bottom of each map, any of which you can click on to view the measurements, with blue being the least and yellow and red showing higher amounts...quite obviously, even in these tiny versions shrunk to fit an email draft, you can see that there has been a dramatic increase in atmospheric methane in just the past year...you may recall a few weeks ago that there were a few articles included in that weeks package about russian scientists who had discovered vast plumes of methane bubbling to the surface of the arctic ocean off the coast of siberia; small columns of methane bubbles had been observed previously, but these were described as "powerful and impressive seeping structures more than 1,000 metres in diameter" and that they had observed hundreds of such plumes in a relatively small area, suggesting that there were likely thousands of them off the siberian coast...ok, so what is going on? those who were with me last winter may recall my explanations of the unusual weather patterns in the northern hemisphere wherein lake erie was freezing before hudson bay and greenland's melt season was 50 days longer than normal; technically, we were seeing the effects of a negative arctic oscillation; the analogy i drew at the time to explain what was happening was to imagine a refrigerator door being opened, with cold air spilling down & warm air entering the top; whether this condition is becoming a new normal as it's enhanced by an ice free arctic is still a matter of speculation, but the fact is that the arctic has been bearing the brunt of climate change for years...now, both the frozen tundra and the arctic seabed contain tremendous amounts of methane, either from rotted organic matter stabilized for thousands of years in the frozen ground, or as methane-hydrates frozen at high pressure on the seabed; what appears to have happened over the past year is that the arctic ocean off the siberian coast has become warm enough to start a significant melting of the methane hydrates on the seabed, and they've begun entering the atmosphere at an increasing rate; methane is known to be a potent greenhouse gas, considered 25 times as potent a heat-trapping gas as CO2 over a 100 year time horizon, but 72 times as potent over 20 years; so we may be on the cusp of a rapid or runaway warming...i havent yet seen this connection elucidated by any scientists; obviously no one wants to seem hysterical, but the normally conservative IEA (International Energy Agency) sees us soon reaching a point where a 11°F global warming is irreversibly baked in, and James Hansen, the head of NASA's goddard institute, believes that a 5 meter sea level rise is possible this century as the greenland & antarctic ice sheets rapidly melt...

….

"Brace Yourself! The American Empire Is Over & The Descent Is Going To Be Horrifying!"

2012-01-04T03:14:00.001-08:00

in depth interview with Chris Hedges, Pulitzer Prize winning journalist, best selling author…

notes on the week ended Dec 31st

2012-01-01T17:31:00.001-08:00

it's been a rather slow week in the blogosphere, with some websites taking the week off & others posting erratically or not much more than retrospectives, and there wasnt much in the way of breaking news from the MSM either...but we did have the release of the widely followed case-shiller home price index; for the 20 cities covered by the index, housing property prices fell 1.2% for the 3 months ending october, compared to prices of equivalent properties over 3 months ending in september; the narrower 10 city index was down 1.1%; 19 cities had declines for this report; only phoenix showed a monthly gain...these price declines are greater than would normally occur at this time of year; bill mcbride @ calculated risk seasonally adjusts the case shiller indices for his charts, & he reports the seasonally adjusted 10 city index down 0.5% in the report ending october & off 32.9% from the peak, and the 20 city seasonally adjusted index down 0.6% month over month & off 33.0% from the peak, which is a new new post-bubble low for the 20 city index….on an annual basis, home prices were 3.4% lower than they were in last year's october report, which is consistent with the year over year numbers we've seen from this report for the past several months...for city by city details, the WSJ produces a sortable table of home prices in the 20 cities in the index, and mcbride’s 20 city year by year graph is included above…although detroit & washington are the only cities showing year over year gains, home prices in detroit, cleveland, las vegas & atlanta are now nominally lower than they were before the turn of the century; bill mcbride takes this historical comparison a step further, & looks at house prices in real terms (adjusted for inflation) and shows that in those terms, prices as per the case shiller national index is back to levels not seen since the first quarter of 1999...the adjacent chart shows his comparison for that national index(red), as well as the C/S 20 city index (yellow) & the corelogic index used by the Fed (blue)...since case shiller is the last of the home price indices to report, we can take this opportunity to compare the other readings for october; CoreLogic reported their home price index declined 1.3% in october on a month over month basis, and 3.9% YoY; FNC reported their national index based on only non-distressed home sales (ie, not incl short sales or foreclosures) and their reading showed october prices down 0.6% over the prior month’s prices....RadarLogic reports their 25 city index as being down 2.0% for the month of october, their worst monthly reading in 3 years, with a 5.4% decline year over year; and the FHFA (Federal Housing Finance Agency) only reported a seasonally adjusted index; by that metric, prices were down 0.2% for the month and 2.8% for the year...furthermore, Zillow estimated the total home equity value lost for the year will be almost $700 billion, which compares to the equity lost last year of $1.1 trillion, and a total of $9 trillion value lost since housing prices peaked in 2006...incidently, zillow will also estimate the market value of any home with their "zestimate" tool; type in the street address in the 1st search bar here, the city & state in the second bar, & you'll get room & space details as well as a satellite view of the house...caveat emptor, though, they have mine listed for quite a bit more than what its worth...

these ongoing real estate price declines are now starting to impact local community’s revenues as well; this week Maryland reported the results of property re-assessments over the past three years and found that home valued had declined by 17%, with 9 out of 10 properties losing value and suburban prince george's county showing the worst valuation decline at 37%…since reassessments are infrequent & typically lag price declines by 3 years, this will continue to impact local budgets for years to come, and as i pointed out earlier this year, this declining funding for school districts is one of the problems contributing to the crisis in US public education…there are no more foolish politicians than those who rant about deficits putting a burden on future generations who use that as an excuse to cut funding for their education… & as a country, we are going to have to come up with alternative ways of providing for that funding, because it isnt going to come from property taxes that local residents can vote on…and dont look for a “recovery in the housing market" that the pundits keep talking about….with declining median incomes, a return to a time where real home prices appreciate will not happen again in our lifetimes; as i’ve explained before (here & here) the lesson of this recession is that houses depreciate, just like cars...

in all the congressional commotion of the last few weeks in getting a fiscal 2012 budget passed & extending the three expiring programs (payroll tax cut, unemployment rations, & the doc fix) no one paid attention to the numerous other tax breaks & subsidies that will have also expired by the time you read this...of the roughly 90 "temporary" special interest tax breaks & provisions that congress has been routinely extending, 53 were expected to expire at midnight on the 31st, according to the congressional joint committee on taxation; many of them we wont miss; such as the corn ethanol subsidy, the post 9-11 tax break for developers in lower manhattan, or the special tax breaks for NASCAR race track owners, but among them is the $74,450 exemption that protects about 30 million middle-income households from the Alternative Minimum Tax; a fair guess is that this, as well as others, such as the accelerated depreciation for business capital investments, may be extended retroactively when congress gets back in session on the 17th...& also with congress out of session, the treasury announced early this week that it would be asking for the 3rd tranch of debt ceiling increase on friday, as they were within the statutory $100 billion of the current budget cap; if you recall the provisions of the "budget control act", the negotiated debt ceiling increases came in 3 tranches of $400B immediately, with $500B & the remainder of the $2.1 trillion to be voted up or down as needed later; however, if they were voted down, obama could veto the vote, & the ceiling would presumably be raised anyhow because there's no way the opponents could get the 2/3rds necessary to override a veto; however, due to the minor tempest in a teapot by those members of congress who wanted to be on record as voting against the ceiling increase, bipartisan barry caved in again & postponed the request until such time as his opponents would be back in town to bash his big-spending ways...& while im on the subject of bipartisan barry, this week obama nominated jerome powell to the Fed board; powell is a republican, a bush appointee no less, the former undersecretary of the treasury for domestic finance in the early 90s...if you recall, republicans had earlier blocked the nomination of nobel prize winning economist peter diamond to the same position...some people are saying obama did this so he could also get one of his own selections, jeremy stein, past congress at the same time...but if the man had any testicles, with congress out of town, he'd use recess appointments to fill these positions & all the judgeship vacancies with his people, just like Bush did....even the consumer financial protection bureau, the only part of dodd frank not written by financial lobbyists, is still waiting for confirmation of richard cordray to fill the top spot that should have been given to elizabeth warren...

the last time we looked at europe was after their summit which produced a new treaty imposed by merkel & sarkozy which would subject the 17 eurozone countries to strict deficit ceilings; that was shortly after the Fed & 5 other central banks had co-ordinated the 3 month dollar currency swaps so that the ECB could provide funding to the eurozone banks, which had grown so suspicious of each others solvency that interbank lending had virtually ground to a halt; last week i mentioned in passing that the ECB had further extended $641B in 3 year loans to the eurozone banks in an further attempt to alleviate those bank funding strains (and as some had speculated, possibly loan money to their governments in something of a back door bailout)...it doesnt appear to be working; every day since last thursday overnight deposits at the ECB by european banks hit new records, and although they declined slightly on friday, virtually all ($591bn) of the 3 year LTRO was being redeposited at the ECB, suggesting interbank lending in europe is still mostly frozen; furthermore, the ECB, which eschews monetization & QE, continues to report balance sheet records, which zero hedge characterizes as “rising parabolically” …and although there was some optimism when the first auction of 6 month italian debt was successful on wednesday; the thursday sale of 10 year bonds met weak demand, & cost them nearly 7%…the new year will bring €740 billion in gross debt issuance for the eurozone governments, including €82 billion in debt issuance in january alone, which means the old debt that they roll over will now have to be serviced at these ever higher rates…

some interesting stories also came out of the UK this week, & it gives us an opportunity to check on how the UK is doing after a year & a half of fiscal conservatism, which started last year with layoffs of a half million public employees; over the christmas holidays, the Cameron government snuck in a provision whereby their national hospitals could now get 49% of their income from private patients, in an attempt to “turn the NHS into a US-style commercial system, where hospitals are more interested in profits than people”'; hidden reductions in tax credits for the poorest britains are now imposing the equivalent of a £2.5bn 'stealth tax' on them, which when combined with price increases, are costing families £5 a day; meanwhile the average UK family now has only £161 of weekly disposable income, which is down 8.4% from this time last year; and last week it was reported that unemployment in the UK continues to rise, now highest level in 17 years, so it should be no surprise that they’re now seeing over 1,000 metal thefts every week, targeting rail lines, churches, war memorials, works of art, manhole covers and even cemeteries, as people try to make ends meet by steaing anything they can sell…

Anonymous' "Survival Guide For Citizens In A Revolution"

2011-12-28T13:19:00.001-08:00

Anonymous Survival Guide for Citizens in a Revolution(source)

notes on the week ended Dec 24th

2011-12-26T15:06:00.001-08:00

you probably have all heard the news by now that the House republican leadership finally OK’d a two month payroll tax cut extension, et al, which had been earlier stalemated by a House vote to oppose it which had been taken tuesday…if you recall last week, that bill to extend the expiring programs had been passed by an overwhelming bipartisan vote in the senate on saturday & boehner had indicated his house majority would follow suit, so the senate had already left town when the house GOP revolted en-masse, leaving boehner with egg on his face....since it was obvious that some kind of deal would have to be cut before year end, because there was no way they would allow the mandated 27.4% pay cut for doctors who treat medicare patients to take effect, expectations were that the tea party contingent would hold out till the last minute to extract concessions that the democrats had expected they’d have to give; however, senate minority leader mcconnell broke ranks & joined obama & the Dems in attacking the House intransigence, boehner caved in & agreed to the 2 month extension, & the house version of the bill was passed by unanimous consent, which is a parliamentary trick that allowed the bill to be snuck through as long as no one objected…(seems our legislative process functions better when most of the congresscritters are out of town)…HR 3765, the $30 billion bill obama signed friday, extends the 2% payroll tax cut cut for all those who will make under $18,350 in the next 2 months (1/6th the payroll tax cap of $110,100) but adds on a “recapture” tax of 2% for those who make over that amount; it also extends rations for the unemployed, but because the emergency rations are still based on a state’s unemployment over 3 years & the Dems werent able to tweak it, 32,000 of the long term unemployed in michigan & minnesota, states which are better off now than their 3 year jobless rate, will be limited to 79 weeks, and be cut off in february...all this is being "paid for" by an increase in the fee charged by the GSEs on the home loans they purchase, which could put another crimp in the housing market…the bill also requires that obama make a decision on the Keystone XL pipeline within 60 days, which may doom the project, as envronmental groups are convinced that forcing obama to make a decision on the pipeline without a proper review will lead to its rejection…the concession won by boehner was to establish a House-Senate conference committee to work on changes to a one-year extension of this deal, so we get to reenact this whole brouhaha in another 60 days…

there were a number of housing related reports out this week, the most important of which was the benchmark revisions to home sales that were reported by the NAR (National Association of Realtors) over the 4 years between 2007 and 2010; as unreal as this seems, existing home sales which had been reported as being 20,629,000 over that entire period were overstated by 16% more than the 17,680,000 that actually occurred, hence they announced on wednesday that U.S. home sales from 2007 through 2010 were about 14% lower than first reported; this revision had been known to be coming for weeks, because it was announced after a number of housing analysts had noticed the discrepancy between NAR figures & data from CoreLogic & the census bureau, even so, the magnitude of it seemed to surprise most observers…the adjacent chart from calculated risk, which should enlarge, shows the size of this change by month, with blue as home sales were first reported, & red as they were revised….since the government BEA has used NAR sales figures in computing the brokers commissions & fees component of GDP, these revisions are expected to result in minor revisions to GDP growth over the period, mostly in 2007…and speaking of GDP, the BEA released their 3rd estimate of 3rd quarter GDP this week, down to 1.8% from the 2nd estimate of 2.0% and much lower than the widely reported first guestimate of 2.5% growth…

so, after the prior year revisions, the NAR announced existing home sales for november at a seasonably adjusted 4.42 million rate, up from the revised & adjusted 4.25 homes sold in october, & also up from the seasonally adjusted & revised sale pace of 3.94 million homes reported sold in november 2010; a separate report from a HousingPulse tracking survey indicated 46.1% of those november sales were of a distressed nature, with short sales leading that category at 17.6% of total home purchases for the month…CoreLogic reported there was also a “shadow inventory” of severely delinquent & foreclosed homes not on the market of 1.6 million units…new home sales for november were also reported by the census bureau this week, at a seasonally adjusted annual rate of 315,000 homes; although the actual number of homes sold for the month was 22,000, a couple thousand more than last november’s 20,000, this year is still shaping up to be the worst year on record for new home sales…mortgage rates across the board were again at all time lows, with the 30 year fixed loan at 3.91%, the 15-year rate at 3.21% and the one-year ARM down to 2.77%; even so, mortgage applications fell 4.9% for the week…the census bureau also reported housing starts for november a seasonally adjusted annual rate of 685,000, up 9.3% from the october rate, and building permits for a seasonally adjusted annual 681,000 additional homes were issued in november…multi-family starts at around 170,000 will be about 60% higher than last years record low, which in turn will result in record low multi-family completions this year…

in matters of the foreclosure fraud settlement being pushed by the administration & the banks, the lead attorney general on that case, iowa’s tom miller, continues to postpone the date for a settlement (last week he said it would be done by christmas); meanwhile, california’s camela harris & nevada’s catherine cortez masto, who are not part of the “50 state” settlement, have announced a joint investigation into fraudulent mortgage & foreclosure practices by the same banks that miller and the administration are suggesting immunity for…late last week nevada’s masto, who had previously brought fraud charges against 3 LPS (Lender Processing Services) executives, filed suit against the firm & its subsidiaries for widespread document fraud, deceptive statements in attempts to correct document fraud, improper control over foreclosure attorneys and the foreclosure process, & misrepresentations about LPS’s services; this week california’s attorney general harris filed suit against Fannie & Freddie for not maintaining 12,000 foreclosed properties in california where the GSEs serve as landlords, and in another rare case of a public official actually trying to do his job, Steve Linick, the inspector general of the FHFA, which supervises Fannie and Freddie, has taken the results of his investigations to new york attorney general Schneiderman because he cant get anyone in the Obama justice department to prosecute mortgage related misdeeds…

there were a number of important posts this week dealing with a problem i've been trying to wrap my head around & explain in comments on other's blogs for several weeks, that being that the outstanding US debt & other safe assets are in such short supply that financial markets, & more specifically the shadow banking system, is unable to function properly...US debt, that same US debt that our lame brained policy makers & politicians damn & rant about, has a special function in the financial markets; without it, the financial markets freeze up...what's important to understand is that short term US government debt has become, at least in part, the worlds money supply; a million dollar Treasury bill is used as money by the international banking system and by sovereign wealth funds in the same sense that you use a ten dollar bill in your wallet…thus, any contraction of the supply of the reserve currency (our treasury debt) has a negative impact on the world economy in the same manner that a contraction in the domestic money supply impacts our nation's economy (see IMF paper on this, PDF)...the adjacent chart, from the 2012 credit suisse global outlook via FT Alphavile, shows the decline in safe (AAA) assets in primary reserve currencies available to use as financial collateral & in repurchase agreements over the last decade (skipping some years); the two that dropped out with the recession’s onset were structured products (red) & agency MBS (grey); downgrades of european countries have further reduced AAA assets this year…as economist david beckworth points out “these safe assets serve as transaction assets and thus either back or act as a medium of exchange…(they) have served as collateral for repurchase agreements, the equivalent of a deposit account for the shadow banking system…the disappearance of safe assets therefore means the disappearance of money for the shadow banking system”…this problem exacerbated the liquidity crunch that developed in the European banking system a few months back which prompted the Fed’s recent action to coordinate with 5 other central banks to lower the price of dollar denominated currency swaps in order to ease ongoing bank funding strains, and this week’s ECB lending of $641B to banks via a 3 year LTRO, which, btw still doesnt seem successful as ECB overnight deposits hit a new high thursday…quality collateral has become so scarce that banks are hoarding it just as a miser would hide paper money under a mattress in times of uncertainty…but instead of creating “money” when its in short supply & needed, the world is stuck with this system of having to borrow it & pay it back; what steve roth at angry bear calls “a stunningly byzantine and dysfunctional approach to managing the supply of money to the real economy that produces human-consumable goods and services (though it works out very nicely for the bankers, personally)”

reducing the debt even effects us adversely domestically; Dr Randall Wray has shown that in each of the 6 times in US history where we had a depression, it was preceded by substantial budget surpluses and significant reduction of the debt; this was a concern of the Fed & bush administration economists early last decade; it became clear that if clinton surpluses continued & our debt was paid down, the financial system would soon experience a dearth of safe assets & would begin to lock up; so the bush tax cuts were initiated in order to keep levels of AAA assets high enough for the markets to operate..but now, the same bush chief economist who was the architect those tax cuts, greg mankiw, is now nefariously suggesting that US debt under obama makes the US similar to greece or zimbabwe…we really need a new word to describe government note, bill, & bond issuance, because the nature of a government issue is closer to creating needed money than it is to what the public & the airheaded congresscritters think of as "debt"...obviously, obama suffers from the same delusion, saying that the government is like a household and should also tighten its belt when times are tough...& the mistake they're all making is what's costing us this prolonged & deep recession...

grandma got indefinitely detained now…

2011-12-25T17:09:00.001-08:00

(trying to come visit christmas eve)

A Very TSA Christmas to All, & to all a goodnight…

walking in the cinders of ayn rand…(greenspan’s winter wonderland)

2011-12-24T02:41:00.001-08:00

lyrics HERE...

o robo-ly right (the servicers were signing)

2011-12-23T05:40:00.001-08:00

a christmas hymn parody on robo-signing, loan servicing, & foreclosure fraud…

lyrics HERE

the 12 days of bailouts…

2011-12-23T03:57:00.001-08:00

reposted from xmas 2009, & still apropos…h/t 8mileshi..

it’s beginning to look a lot more riskless (for the elites)

2011-12-22T01:46:00.001-08:00

lyrics HERE…

Glorious! in excess & way so…(CEO pay)

2011-12-21T04:38:00.001-08:00

lyrics HERE…

HALLELUJAH CORPORATIONS

2011-12-20T12:39:00.000-08:00

notes on the week ended Dec 17th

2011-12-19T15:41:00.001-08:00

the major news this week seemed to be that the Fed didnt do anything...seriously, they had a FMOC meeting, their post-meeting statement was nearly identical to the statement after the November meeting, yet it generated heavy econoblog coverage & at least one article on it from every major media outlet...why so much attention from the econ-blogosphere on the Fed's routine inaction? likely its continued frustration with the shenanigans of a totally dysfunctional congress & a white house that completely ignores economists, leaving those whose business is it to chart a path through the maze to a sustained recovery waiting for Ben & his band to throw more money at the economy, even as ineffective as monetary policy has been to date...

with the continuing resolution passed last month expiring on friday, it was probably predictable that congress would wait till the eleventh hour to finally pass a budget to get us through the remainder of the fiscal year (ending 9/30/12)…instead of putting together a spending package that had a chance of passing, the house spent most of the week loading a christmas tree with special interest provisions that obama clearly stated from the beginning that he would veto…& as it seemed no compromise was in sight, by midweek we started seeing the expected “government gonna shut down o god we’re all gonna die” genre of headlines…but probably just as predictably, by the end of the week, the contentious items were separated out & over a trillion dollars of spending was agreed on to fund the major agencies of the government until the end of the current fiscal year; since this appropriations bill is more than 1200 pages, few details have been analyzed, although we do know that it reversed the ban on incandescent bulbs, now that all old domestic lightbulb production has been mothballed…that still left the half dozen or so expiring provisions, such as unemployment compensation, the payroll tax cut, the doc fix, etc, that we’ve talked about over the past couple weeks to be dealt with, budget add-ons that obama & the democrats wanted, leaving boehner & the house tea party again holding the trump cards…so the Senate democrats included with their compromise bill to fund those expiring provisions just till February a provision to fast track the keystone XL oil pipeline which was subsequently passed by the senate & sent to the house on saturday, where we’re waiting to see if it will pass before year end…

there was another major piece of legislation passed separately this week you should all know about…the 2012 National Defense Authorization Act, which is the regular defense appropriations bill (920 pp pdf), includes provisions authored by john mccain & carl levin that allow for the indefinite detention of suspected terrorists, including US citizens, by the military without being booked, charged or tried, until such time as "hostilities end"...this has already passed by large bipartisan majorities in both the senate & the house and obama has indicated he will sign it...this bill effectively repeals the posse comitatus act (which had prevented use of the military against US citizens), abolishes habeas corpus (the right to challenge an unlawful detention), the right to a fair trial and the right to due process; clearly, it would seem that these provisions would be unconstitutional, but if someone is among those who have disappeared, they would hardly be in a position to challenge the constitutionality of what had been done to them, would they?...people in this country have been putting up with the inconveniences of the dept of homeland security & the provisions of the patriot act, but this is the patriot act on steroids; you might say there's nothing to fear if you're not a terrorist sympathizer; but the broad scope of this legislation leaves it entirely up to the executive branch to decide who's an enemy of the state, such that if a future president would want to round up & disappear politcal dissidents, such as OWS, it would be within the scope of this legislation to enable that action...the most complete article describing the language & potential abuses of this legislation ive seen to date is Three myths about the detention bill by glenn greenwald at salon; ive also posted a video rant about this legislation here at MW 666 as bill of rights? ha ha, tell me another one…

the economic reports that were out this week were not as encouraging as we've been seeing over the past several weeks; the official retail sales report for november from the census bureau made a liar out of the retail tracking estimates we reported earlier, as november sales were only up 0.2% over october's, & although they were still 6.7% better than sales of a year ago, a lot of that can be accounted for by higher gas prices, up 18.4% YoY; nominally, retail sales are at a new high, 5.5% above the 2008 peak, but again, that isnt adjusted for inflation....although wholesale inventories were higher, seasonally adjusted retail inventories were virtually unchanged...the Ceridian-UCLA diesel fuel index also slowed to 0.1% in november, compared to a 1.1% increase registered in october....we also had a weak industrial production & capacity utilization report from the Fed; overall production was down 0.2%, with factory output ex-autos down 0.4%, autos down 3.4%, & mining & utilities both up slightly; total industrial production was still 3.7% better than a year ago, although year to date is 5.2% lower than the 2007 high water mark...capacity utilization for all industry also decreased 0.2% to 77.8%, 10.5% off the record low but still considerably below the long run average as shown by the adjacent chart….in general, companies arent going to be investing in new plant & equipment while there’s that much unused capacity...trade also seems to be slowing as well; reports from LA & Long Beach ports, which account for 40% of US shipping container traffic, show both inbound & outbound traffic down over october's 0.3% & 0.2% respectively, & over last november's, 4% & 2% respectively...

it’s probably also worth noting that reported first time claims for unemployment fell to 366,000 for the week ending Dec 10th, the lowest since may 2008…the problem with this number is that’s it’s seasonally adjusted & typically volatile, ie, so we really should wait for adjustments, which have tended to be up, though less so than during the summer, and wait for a longer term tread to establish itself, but with the 4-week moving average at 387,750, 6,500 less than last week’s revised moving average, we’ll take whatever little light is in this tunnel…the consumer price index was also reported as unchanged for november, as energy declines offset increases in other categories; year over year, prices are up 3.4% (the BLS release says “over the last 12 months before seasonal adjustment”; would someone please explain how last november could be a different season than this november?); the core inflation rate, which excludes food & energy & which you’ll recall as the inflation measure the Fed follows, was up .2% for november & 2.2% over a year ago…the cleveland Fed also publishes two other inflation measures; a median inflation, ie, the price change that’s right in the middle of the list of all the CPI price changes, which rose 0.1% in november (& at a 1.1% annualized rate), and a trimmed-mean inflation rate, wherein they eliminate the 8% of the CPI components with the highest and lowest one-month price changes & then figure the average of those remaining, which was up 0.1% for the month & 1.0% annualized…

there was one report out this week that was quite surprising, especially in light of all the articles one reads about how burdened americans are by their accumulated debt; the Fed released the 3rd quarter Household Debt Service and Financial Obligations Ratios, a report which shows the percent of household disposable personal income that is dedicated to debt service; quoting the Fed release: The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt. The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio...what is surprising about this report is that the overall debt service ratio is now back to 1994 levels, obviously because of continuously lower interest rates; and as the adjacent chart of debt service as a percent of disposable income shows, with the Fed committed to a zero interest rate policy for another 2 years, we are well on track to hitting a series low on this debt service metric...it's also worth noting that what applies to households also applies to government debt, as long as the government debt service remains low, the interest on the debt portion of the federal budget remains very manageable...

bill of rights? ha ha, tell me another one…

2011-12-17T12:13:00.001-08:00

notes on the week ended Dec 10th

2011-12-11T14:11:00.001-08:00

the first results are in from the dollar currency swaps that were extended by the Fed (and other major central banks) last week; on thursday, the ECB (european central bank) reported that it would lend $50.7 billion in dollars to 34 eurozone banks at a rate of .59%. for 84 days (theyre calling them 3 month loans); since demand from the BofJ was minuscule by comparison at $25 million, its probably reasonable to assume most of the swaps originated with the Fed... you should also recall the report last week on the 2008 $7.7 trillion Fed bailout of the banking system that resulted from a bloomberg news FOIA lawsuit; one would have thought that would have died in this weeks news cycle, but in what had to be a PR blunder by the Fed, Bernanke personally attacked the report, charging in a letter to members of Congress that stories about its bailout programs “have contained a variety of egregious errors and mistakes.” without mentioning bloomberg by name; bloomberg news, however, knew who ben was talking about, and shot back with a point by point rebuttal; the only real bone of contention seems to be the way the amount was described; the Fed said that on any given day, the credit extended the banks on one day was never more than about $1.5 trillion (still more than twice TARP, btw); it seems bloomberg arrived at the $7.7 trillion figure by adding the total loans, ie, including those that were rolled over again after the initial period...but in scoring this dispute, we'll have to give the point to bloomberg; if the Fed didnt have something they wanted to hide in the first place, why did they fight so hard to prevent this information from being divulged? and bloomberg may have miscalculated anyhow; a separate new study from the levy economics institute puts the Fed bailout total at $29.616 Trillion dollars, more than twice US GDP...at any rate, jon stewart had his usual take on these shenanigans, & it's now posted here at MW 666 as TARP times eleven...

congress is again running out of time to have either a budget for fiscal 2012 (started Oct 1) approved, or another continuing resolution passed to extend the current budget for another period; if you recall, in mid-november, as the supercommittee was gasping its last breath, congress passed a continuing resolution to fund the government another month, which now expires on Dec 16th; right now, negotiators from both chambers are trying to tie nine separate funding bills into an omnibus spending bill which would fund many government agencies through the remainder of the 2012 fiscal year (ending spet 30); however, the tea party contigent has dubbed it a "megabus" spending bill & has called for its defeat; they want to force a vote on each item to use for campaign ad leverage...and this bill doesnt even include the expiring programs we've been discussing the past few weeks; while there's been considerable debate on how to "pay for" the payroll tax cut, there's been little movement on either of the proposals to extend unemployment rations past the end of the year; as we saw last week, the average duration of unemployment is now at a record 41.1 weeks, so the need hasnt diminished; if there is no extension of this emergency program, 2 million will lose their tiny stipend (averaging $296/week) in january alone, and as the tiers the other jobless are on run out, as many as 7 million american who are on the extended program could lose their ration checks (right now there's a standard state allowance of 26 weeks, followed by 4 extended federal tiers of 20, 14, 13, & 6 weeks each, depending on the level of unemployment in each applicants state, & continuing rations for each tier necessitating a new application)… one congressman, David Camp, from michigan of all places, has introduced a bill to cut the federal portion of unemployment insurance by 40 weeks, which would hit the unemployed his state as hard as any...and although the house republicans passed a bill on thursday linking both the unemployment extension and the payroll tax cut extension to a fast tracking of the keystone XL oil pipeline from alberta to the gulf, obama has indicated he won't accept that deal...what does seem to be getting traction with both parties is a proposal by the administration to "pay for" the payroll tax increase by raising fees that Fannie and Freddie collect from lenders for mortgage guarantees...that has been included in a house republican bill that also includes minor cuts to medicare, increased federal employee retirement contributions, and a handful of other non-tax revenues...as the intention of this payroll tax cut extension is to put money into the hands of consumers who will spend it, the "making work pay" tax cut, which this replaced in last decembers last minute budget deal, would have been a better choice, as it was directed at those making under $40,000, with a gradual fade out at $95,000...

there was an interesting study on the housing bubble from the NY Fed this week, entitled “Real Estate Investors, the Leverage Cycle, and the Housing Crisis", a long 52 page PDF including graphics; there was also a shorter summary of it on the NY Fed blog, titled “Flip This House”: Investor Speculation and the Housing Bubble; in it they document the considerable leverage being used by investors in housing as prices rose through the middle of the decade, and the subsequent cascading defaults by those investors as housing prices collapsed...it's pertinent to understand what happened because if you happen to tune in any wing-nut talk show, you can still hear the refrain that the housing bubble & subsequent collapse was caused by barney frank, Fannie & Freddie's strong arming the banks to loan money to subprime borrowers (read: minorities) who should have never been able to afford a home, even though barry ritholtz totally debunked that by showing the global nature of the housing bubble, wherein the housing price increases in the US were actually dwarfed over time by real price increases in ireland, the UK, the netherlands, spain, australia & several other countries where barney frank's influence was minimal; but even this week it was again alleged on CNBC that Fannie Mae and Freddie Mac were responsible for the majority of subprime loans leading to the bubble...at any rate, by way of explaining what the NY Fed found, im going to include first on the right a set of charts from the report; both charts show the percentage of homes purchased by investors who had multiple mortgages on their credit reports; the one on the left is national; the one on the right is for just the bubble states of AZ, NV, CA, & FL...red are those borrowers with 2 mortgages; green is three, & purple are those with 4 or more mortgages on their credit reports...you can see the number of multiple mortgagees got as high as 35% nationally, and nearly 45% in the bubble states, in 2006; far more than could be accounted for by the handful of people who may have purchased a second vacation home; in fact almost 20% of mortgages originating in the bubble states were from borrowers with 3 or more home loans on their reports...the single chart below then shows the percentage of mortgages that were seriously delinquent during the same time frame...you can see that by the 4th quarter of 2008, those with the multiple mortgages accounted for a disproportionate amount of mortgages in default as home prices collapsed, and as the NY Fed says, "thereby contributed importantly to the intensity of the housing cycle’s downward leg"...clicking either the double chart above & the single one below should open it in a new window...

there was another surprising report from the Fed this week, or at least surprising to me, because i assumed the worst of the collapse of household wealth had played itself out as the decline in housing prices moderated...but apparently it hasnt yet, because the 3rd quarter flow of funds report from the Fed showed that household net worth was down the most in one quarter since the last quarter of 2008…what i overlooked was the effect that declining household financial assets such as mutual & pension funds would have on the total, as household net worth declined $2.4 trillion to $57.4 trillion from the 2nd quarter level…the effect of rising or declining household net worth on the economy is known as the “wealth effect”; when people see their assets growing, they tend to spend more; when they feel poorer, they spend less…the adjacent graph, constructed from data in the Fed report (click on it to expand), shows shows household real estate assets and mortgage debt as a percent of GDP; most of the decline in mortgage debt is as a result of foreclosures or short sales…apparently Americans dont too much cotton to feeling poorer, because in october they took on even more debt, as consumer credit increased by $7.65 billion to $2.457 trillion; the lion’s share of that was non-revolving credit, which includes student & auto loans, which grew by $7.28 billion; while revolving credit, ie, credit card debt, grew by a more modest $366.2 million...

the handful of economic reports out this week further confirmed the improving trend we saw last week; another consumer index, the Reuters/UofM sentiment index for december was up tp 67.7 from 64.1 in november, the highest reading since june; rail carloads for november were up 2.3% from a year ago while intermodal traffic increased 3.8% YoY; meanwhile, our trade deficit report for october was lower at $43.5 billion, down from $44.2 billion in september, with both imports and exports declining, and although the ISM non-manufacturing index for november was at 52.0%, down from 52.9% in October, wholesale inventories increased by a seasonally adjusted 1.6% in october, indicating increasing business pre-holiday confidence, and prompting goldman to revise their 4th quarter GDP forecast from +2.5% to + 3.4%...the adjacent graph is of our monthly exports & imports over the last 18 years; you can note the decline in imports (red) over the past 6 months, gradually improving our trade deficit…

actually, it's not just that we seem to have avoided the double dip recession so often predicted earlier this year, the US has been the only major country that has seen its forecasts improve going forward; last week we saw the chinese manufacturing index fall to contractionary levels for the first time in 3 years; this week we see the composite 17 nation euro-zone PMI (purchasing managers index) contracted again in november, reading below 50 at 47.0 for the 3rd month in a row, as spain's industrial output fell 4% and even germany’s PMI showed contraction at 49.4 for the first time in 2 years; elsewhere in the EU, the UK mfg index contracted in november for the 3rd time in four months, and poland's government cut their 2012 growth forecast to 2.4% from 4.0%…meanwhile, japan’s 3rd quarter GDP growth was revised downward to an annualized 5.6% from the previously estimated 6% (rebounding from contaction in the first 2 quarters), while the Bank of Korea slashed its country’s growth forecast for 2012 to 3.7%, from the previous forecast of 4.6% growth…the growth rate in india dropped to 6.9%, the slowest in 2 years, & even the brazilian economy failed to expand in the 3rd quarter…

there was a major summit of european countries this week, intending to produce another final solution to their crisis, but before that could even get underway, S&P put 15 eurozone countries, including both france and germany, on a negative credit watch with potential for downgrades within 3 months; the problem with any downgrade of the 6 countries that still have a AAA rating would pose is that those six back the EFSF (european financial stability facility), aka the bailout fund they’ve been trying to peddle, and if one of them should lose the AAA, so would the EFSF (which, btw, is being renamed the ESM - euro stability mechanism); a reuters poll of 13 economists had 11 of them predict just such a downgrade to france within 3 months…as the summit began on thursday, ECB president Draghi announced a rate cut from 1.25% to 1% and other bank support measures but generally disappointed by refusing to expand it’s bond-buying program...on the same day, the european banking authority ran another set of stress tests on the eurozone banks & found them to have a €115bn capital shortfall, higher than the €80 shortfall found in october, largely because of worse than expected capital deficits found at banks in germany; the first sentence in the FT article assumed this meant the prospect of further taxpayer bail-outs…the summit itself produced a treaty pushed by sarkozy & merkel on the rest of the eurozone countries, which was agreed to by the 17 countries that use the euro, but of the 27 EU countries, both the UK & hungary refused to participate, and the czech republic & sweden deferred till they could consult with their parliaments…the treaty itself included a provision that no investors would have to share in the losses resulting from the bailouts, and a commitment to unified fiscal austerity, with a strict enforcement of a 3% deficit ceiling…they also backed a $267 billion funding commitment to the IMF & changed the voting procedures on the ESM (bailout fund) so that unanimity would no longer be needed, prompting a threat by finland to pull out of the funding…

notes on the week ending Dec 3rd

2011-12-06T16:02:00.001-08:00

ok, its been a busy week, & not just with the unemployment & housing reports that came out, but a lot of other news as well...even though im already running late, i'm going to try to point out & comment on as much of it as i can, but may not get to all i'd like to, so if there's a week you should check my other blog for whatever i miss or mention briefly here, this would be it...

let's start with the news wednesday that the Fed coordinated with 5 other central banks (BofJ, BofE, Swiss, Canadian & ECB) to lower the price of dollar denominated currency swaps in order to ease worldwide bank funding strains that had developed in light of the euro mess, because that's been widely misunderstood as meaning "the Fed just bailed out europe"...so we should start by noting that this isnt costing the taxpayers anything, and the action the Fed has taken is actually closer to a temporary loan rather than anything close to a gratis bailout...and the Fed doesnt really give a damn about the euro or the governments of europe, either; the Fed is only interested in saving the banking system, everything & everyone else is secondary...lets start by explaining what they're doing; ie, lowering the cost of swaps from 1% + the overnight index swap rate to a half percent; for any given swap, a central bank sells a given amount of its currency to the Fed in exchange for dollars; the swap agreement specifies that the swap will be reversed at a specified future date at the same exchange rate, so essentially the entire action is unwound at that time, and there is no risk when dealing with other central banks...this is not unprecedented, the same thing was done after the Lehman collapse, & after 9-11...so why did they need to do this now? well, by virtue of the current high interest rates on sovereign debt issued by the peripheral european states, bonds in those countries that were purchased earlier by european banks have gone down in value considerably; hence, most of the european banks had grown suspicious of the solvency of the others, and they either stopped lending to each other, or charged ever higher premiums for their interbank loans; the same became true of their transactions with banks in the US & elsewhere around the world...as suspicion & apprehension mounted, their only alternative became to borrow from the ECB & deposit funds overnight at the ECB; normal interbank transactions started freezing up...by temporarily providing safe dollars cheaply to the ECB which they could lend to the euro-zone banks, the Fed is delaying their day of reckoning, when those banks, unable to rollover their funds, would be forced to sell their bonds in the peripheral countries at loss, likely causing cascading bank failures...but most of those who've followed the european situation closely think its still far from being out of the woods, because of continued intransigence by the Germans & the ECB...if the ECB would announce a commitment to buy as much spanish & italian debt as would be necessary to drive their interest rates to say 3%, the crisis would be over tomorrow; but they wont "print money"; their bond purchases have been sterilized because the germans still have their historical, deep seated fear of inflation, even though the underlying trends in europe are now contractionary...

more details about the Fed's involvement in the bailout of the banking system during the crisis in 2008 were revealed last week as a result of a bloomberg FOIA lawsuit & ongoing investigation, and compared to the $700 billion treasury TARP bailout that we knew about, the Fed bailout at $7.7 trillion was 11 times as large, including $1.2 trillion on one day alone; and what did the banks do with this money? nothing for us; they sat on it & collected $13 billion in interest before paying it back...former treasury economist brad delong took a look at the details & opined that "without the Fed and the Treasury, the shareholders of every single money-center bank and shadow bank in the United States would have gone bust"…links to around 2 dozen on these Fed related stories are included right at the beginning of this week's blog post, if you want more details, opinions & analysis...

we havent seen much progress from congress this week on the extension of unemployment rations and the payroll tax cut which expire at year end; for the unemployment extension, most of the news was was that the parties were far apart & still debating how long, what size, and what strings should be attached to an extension; both parties have introduced bills to extend them; the democrats continue most of the provisions currently in effect; while the republicans would tie the extension to repealing some "job killing" regulations, possibly even taking away the presidents authority to rule on projects such as the keystone XL pipeline...the news on the payroll tax cut was on again, off again all week until friday when two bills, one introduced by each party, both failed to pass in the senate; the democrat plan proposed to "pay for" the tax cuts by a surtax on those making over a million; the republicans planned to "pay for" the tax cut with a federal staff reduction & a pay freeze for federal workers; surprisingly, more even republicans voted against the republican plan than voted for it, which suggests it will be hard to get them on board on any compromise...economist karl smith suggested an interesting way to "pay for" it; issue 10 year TIPS at their current 0.2% percent real interest rate; after 10 years the $119 billion cost would have risen to $120.4 billion, but that could be paid for then off what should be a much bigger tax base; & if the economy hadnt grown by that time, TIPS rates would likely be negative reflecting deflation, so the can could be kicked further down the road by issuing more TIPS at a profit...

on friday, the labor department released results of the 2 surveys making up the november unemployment report; from the broader based establishment survey, they estimated that 120,000 jobs were added on a seasonally adjusted basis, just about enough to keep up with the growth of the population; even better, we again got positive revisions to the previous two reports; september was revised from +158,000 to +210,000, and october was revised from +80,000 to +100,000; while these kinds of numbers aint spectacular, they at least go some way in alleviating the fear of sliding backwards into a recession that the weaker midsummer reports brought on…the lions share of the jobs added this month were in retail, restaurants and bars, obviously not the highest paying; accordingly, average hourly earnings for the month declined 2 cents, to $23.18, from october’s average…the average workweek for all employees was unchanged at 33.4 hours, although it fell a tenth of an hour to 33.6 for the grunt laborers…from the much smaller household survey, from which the headline number is calculated, BLS estimated a gain of 278,000 jobs, but also showed a decline in the labor force as 487,000 dropped out, eliminating those former workers who no longer met the requirements to be counted; as a result of that higher numerator and lower denominator, the ratio of employed to unemployed rose, resulting in a reported decline of the unemployment rate to 8.6% from last months 9.0%; were it not for the declines in the labor force, the unemployment rate would be well over 11%…for the same reason, the U-6 unemployment rate, which includes those only working part time or intermittently when they want full time work decreased to 15.6% from the reported 16.2% in october; gallup, which does an unadjusted survey of unemployed workers, showed the percentage working part time but wanting full-time work to be 18.1%…paul krugman took a brief look at the BLS report and said “meh” (with feeling); producing the chart above right, showing that in terms of the normal working age population, we really havent gained anything since the recession officially “ended” almost 2 & a half years ago…and we did hit a couple of new records we dont want to brag about, too; the labor force participation rate fell 0.2% to 64.0%, the lowest since the early 80s, before women had to join the labor force en-masse, and the average duration of unemployment also set a new record at 41.1 weeks, as show by the above left chart…

there were also a number of housing & mortgage related reports out this week; census reported seasonally adjusted new home sales for october at 307,000, up slightly from the october number of 303,000, which was revised down from the first reported 313,000; the average new home price was reported at $242,300, the lowest since 2003; last week the existing home sales for october were reported at a 4.97 million annual rate, up 1.4% from the annual rate reported in september, and according to the NAR (National Association of Realtors), the median home price was 4.7% lower than a year ago…this week case shiller reported it’s 20 city index of home prices for july, august & sept as .6% lower than the previous 3 month report ending august, and 3.59% lower than a year ago; their national index, reported for the 3rd quarter, was down 3.9% from a year ago…another index, the national home sales index from DataQuick for the current 30 day period, showed home prices 7.8% lower than a year ago, based on reports from 98 of their hundred covered markets…despite a new record low rate for new ARM mortgages, mortgage applications plunged 11.7% this week from the week before…CoreLogic also released a negative equity report for the 3rd quarter, showing that 10.7 million, or 22.1 percent, of all home were underwater at the end of the quarter, a slight improvement from the second quarter; an additional 2.4 million homeowners had less than 5 percent equity at the end of september…

LPS (lender processing services) also reported this week on mortgages delinquent & in foreclosure in october; although delinquencies were down nearly 30% from a year ago, homes in the foreclosure process were at an all-time high; of those homeowners delinquent, 2.33 million loans were less than 90 days delinquent, and 1.76 million loans were over 90 days delinquent...a record 2.21 million homes, or 4.29% of all mortgages, were in the foreclosure process, up from 4.18% in september, and the average number of days that homes in foreclosure had gone without making a house payment also set a new record of 631 days…they also report foreclosure rates in non-judicial states as being 4 to 5 times higher than in judicial states, where the banks have to “show the note” in court, likely indicative of the mess that MERS made of home titles during the slicing & dicing of mortgages into bundles for security sales…the adjacent chart from LPS (click to view) shows this difference, showing non-judicial foreclosure home percentages stuck in foreclosure less than half that of judicial states…at least for the judicial states, this probably bodes well for christmas sales, as almost 7% of homeowners arent making house payments, so they’ll have that much more to spend on toys from china…

there was also an important foreclosure fraud lawsuit brought this week massachusetts attorney general Martha Coakley against the 5 biggest mortgage services, MERS and the shell corporation MERSCorp which is owned by the banks; charges include deceptive foreclosure practices by conducting foreclosures when the defendants lacked the right to do so, producing false documentation practices to initiate foreclosures, failure to comply with Massachusetts’ registration statutes, failure to pay local recording fees, and more; there was also mention in the suit of the damage to massachusetts land & title records, similar to the charges in the lawsuit initiated earlier by geauga county on behalf of ohio…this is the first major lawsuit by a state attorney general for the same charges that that the administration & the so-called 50 states attorneys general are attempting to settle with the banks and heads off their attempt to grant the banks immunity from prosecution for the aforementioned and any other mortgage related crimes they may have committed…

all in all, the economic data this past week continued to indicate that we'd likely avoid the double dip recession that we feared this past summer...the conference board reported their index of consumer confidence rose to 56 in november from 40.9 in october; accordingly, black friday sales were up nearly 7%, to the highest nominal sales ever for that day, although slow sales in the early part of the month reduced the monthly gain to 3.2%; november car sales at an adjusted annual rate of 13.6 million units were the highest since august 2009, and except for the "cash for clunkers" driven sales blip, the highest since june 2008; further more, the chicago PMI (purchasing managers index) rose to 62.6% in november from 58.4% in october, a 7 month high, and the ISM (Institute for Supply Management) PMI was at 52.7% in november, up from 50.8% in october; so while europe may be heading into a recession, it looks as if we've avoided that fate for the time being...

TARP times eleven

2011-12-06T07:30:00.001-08:00

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notes on the week ended Nov 26th

2011-11-27T15:47:00.001-08:00

as was expected, the congressional supercommittee announced it would not reach an agreement on monday, & the focus of the economic blogosphere turned to post mortems and what happens next...most of the concern is over the expiring programs that we discussed last week; the prospect of emergency unemployment rations not being extended, abandoning those out of work longer than 26 weeks without a safety net; whether the payroll tax cut will be extended, the "doc fix", and other annual budget provisions that congress had hoped their supercommittee would solve with one package; with the short week i didnt see any congressional activity on any of the budget related items, although some congresscritters & several commentators made a point that the supercommittee's failure likely doomed renewall of the bush-obama tax cuts for the rich, which were extended till the end of 2012 last december and the continuation of which were one of the elements of the republican supercommittee's proposals (ie, they alleged the rich would create so many jobs that the deficit would fall)...

what we're facing now is the spending cuts sequestered by the budget control act; the act's provisions allows the debt ceiling to be raised $1.2 trillion, tripping in the automatic $1.2 trillion in cuts over 10 years, half to defense, & half to other non-safety net discretionary spending...however, for all the weeping & gnashing of teeth that the defense hawks have been doing about this provision, these so called cuts arent even cuts at all; the defense budget had been expected to rise 23% over the period, the sequestered reductions would apply to that, and as a result, the defense budget would only rise by 16% over the ten year period...nonetheless, the militarists are still talking about undoing even those reductions, but they wont get past obama's threatened veto unless they raise tax revenue to pay for the increases...

those of you who have been on the receiving end of these missives from me since last spring might remember that during an earlier deficit debate, i mentioned a "do nothing plan" that was proposed by annie lowrey, then of Slate, now writing for the NY Times; wherein if we let all the laws currently in effect expire as scheduled, the federal budget would come into balance by the end of the decade...strangely enough, a version of that plan was advanced this week by her husband, ezra klein, at the washington post; the chart to the left shows the deficit reductions that occur if laws currently in effect are allowed to continue or expire without congressional intervention; the lions share, of course, would come from allowing the bush-obama tax cuts for the wealthy & estate taxes to finally expire, the budget would also be reduced by the budget cuts initiated last spring, the aforementioned sequestered cuts, skipping the doc fix, the expiration of the annual exemption under the alternative minimum tax, and various & sundry other "temporary" tax cuts that congress passes almost automatically every year...

however, all is not a bowl full of cherries if we just send congress home & have them do nothing; glance at the table of expiring programs from JP Morgan in the upper right corner; that shows the projected impact to GDP from over the next two years if fiscal policy is unchanged & ongoing programs are not renewed; notice that they project a 2.4% hit to GDP this year, and a 2.6% hit next year, if all temporary cuts and programs expire; similar, but less severe, GDP projections were made by goldman sachs, shown in the adjacent chart; the dashed blue line is with unemployment & the payroll tax cut extended; the dashed grey line is with both of them expiring; & that chart should open larger in a new window if you click on it...

while i'm talking about the potential future paths of GDP i should mention that this year's 3rd quarter GDP growth was revised downward, from the first reported “advance estimate” of 2.5% annualized, to 2.0% annualized, based on more complete source data than they had a month ago; the downward revision was mostly due to a large decrease in the "change in real private inventories", which is now reported to have sliced over 1 1/2% off 3rd qtr GDP growth; the silver lining in that is that it sets the stage for a rebound in inventories and a better report in the 4th quarter…even so, with a first quarter report of 0.4%, & the second quarter at 1.3%, it will take at least 4% annualized growth in the 4th quarter to bring the GDP growth for 2011 up to an anemic 2% for the year…and because an alternate measure, GDI, (gross domestic income) only rose 0.4% in the third quarter, it led at least one economist to point out that “we are only one small data revision away from declaring the US is in a recession, which began in mid-2011”...and there’s no good estimate of how much contagion from the worldwide slowdown will affect our exports, either; china’s manufacturing purchasing managers index surprised everyone by contracting in november for the first time in 32 months, reading 48.0, down from 51.0 last month, on a scale where 50 is stagnant; japan saw its exports decline 3.7% in october from a year earlier…and the Eurostat release of new industrial orders for september showed they fell by 6.4% for the 17 nations in the euro area, which is an indication that europe is seriously contracting….

on tuesday, the Fed announced plans to "stress test" the nation's largest 19 banks in light of those deteriorating conditions in europe, to see what kind of losses they'd incur, and ostensibly to insist that they build defensive capital buffers against what the Fed thinks might be worst case repercussions... furthermore, the 6 TBTF banks will have to present their plans for dealing with this scenario...unlike the widely mocked stress tests that were conducted in conjunction the bank bailouts in 2009, i believe these stress tests are supposed to be annual, a provision of dodd-frank, and somewhat less of a smokescreen, although their seriousness has been questioned...if we look at some of the stress test's scenario provisions (PDF - pp 32 &33) we see that the Fed wants the banks to report their condition should the US GDP contract 7.98%, unemployment rise to 13.1%, the Dow drop more than 50% from its current level to around 5600, housing prices decline another 20%, and commercial real estate go in the tank even more than that; there's 8 other domestic conditions in the test, including inflation, bond rates, etc, and 11 conditions in major economies, if you want to peruse the whole scenario in the table on p32 & p33 of the cited pdf; offhand, it looks tough enough to me, with the one caveat being that the worst europe gets is a 6.91% contraction in the 3rd quarter of 2012, which isnt even as serious a hit as the 10.81% they took in the 1st quarter of 2009...after chartmeister bill mcbride got wind of how the worst case scenario in these stress tests would influence housing prices, he produced the adjacent inflation adjusted housing chart, which includes the popular 20 city case shiller price index (yellow), the national case shiller index(red), and the corelogic index that the Fed uses (blue), extended into the future to show the future home price drop that the banks will be testing against...in this scenario, real house prices drop to a level not seen since 1984…

a couple weeks ago we talked about the new measure of poverty, called the Supplemental Poverty Measure (pdf), that the census bureau released in order to better measure actual disposable income; this week, another part of that report was released which likely includes many of us, the 51 million americans who are considered "near poor", or those who have effective disposable income less than 50% above the poverty level; not only was that number was a surprising 76% higher than the official poverty count published in september, it shows that 100,000 americans, almost a third of the population, were living in poverty in 2010 or were right on the edge of it...note that that census measure is on stats from 2010, and thus includes unemployment rations that some were collecting then as part of their disposable income...but remember, the big layoffs occurred at the end of 08 & early in 09, so there's less than half of the unemployed still receiving a check late in 2011, and thus the current numbers are much higher than the census or the cited articles alludes to...a separate survey, released by the advocacy group Wider Opportunities for Women (WOW), found that 45 percent of us are living in households who are struggling to make ends meet; considered "economically insecure"...these are the 39% of the adults & 55% of the children among us who are in households living paycheck to paycheck without savings for emergencies or for future plans such as college or retirement...also this week, analysts at the center on budget & policy priorities produced an extensive look at the TANF program; the 1996 clinton initiative also called "welfare reform" and found that the safety net is failing miserably; another 6 states & the district of columbia have cut allowances over the last 12 months, and rations for needy families have now fallen to below 30 percent of the poverty line in the majority of states, and below 50% of the poverty line in all states; much less than they were worth when the program was initiated in 1996; the adjacent map is taken from that report, which also has several other graphics & state by state tables; it shows TANF rations per state as a % of the federal poverty level; you can see that only a handful of dark blue states approach a dole of 50% of the poverty line, while there’s the whole southern tier of grey states where the rations are only 10% to 20% of what is needed to live in poverty; in those 14 states, monthly rations are less than $300 for a family of three…in addition, the department of agriculture reported that in 2010, over 17 million households, or 14.5%, lacked the resources to provide enough food for all family members, and 6.4 million of those had normal eating patterns disrupted due to lack of food…the nonprofit network of foodbanks called Feeding America also reports one in five children are at risk of hunger…

since too much happened in europe this week for me to easily summarize, you’ll have to check this week’s blogpost to get the whole story again; for now, ill just note some of the week’s low points; the irish goverment was embarrassed to have their budget for 2013 publically discussed in the german bundestag before it was released in ireland & complained to the EU; the Spanish voters ousted their government and installed conservatives who promised more austerity; because of this economists at JP Morgan expect Spanish unemployment to hit 27% by the end of next year; after considerable maneuvering and arm-twisting, Antonis Samaras, leader of the minority party in greece finally signed a letter of submission to the troika; austrian bank supervisors restricted lending to eastern europe, necessitating a formal request of aid from hungary to the troika; Portugal, Hungary & Belgium were hit with credit rating downgrades (portugal & hungary are now junk), and a german attempt to sell 6 billion worth of their bonds failed, forcing the german central bank to retain nearly 40% of the bunds they were attempting to sell, after which interest rates pretty much all over europe soared to new records the rest of the week…if you've got any interest in reading about the collapse of western civilization in real time, there's links to over 100 articles on the news in europe in the last quarter of this weeks blogpost, best catch it today rather than wait for the history books to be written...

notes on the week ended Nov 19th

2011-11-20T17:46:00.001-08:00

you can stick a fork in the congressional supercommittee which has garnered so much media attention these past couple weeks; it's obvious from the coverage of it that most of the news media hasnt understood that the supercommittee no longer has enough time to have a plan scored by the CBO & back to them by monday, in time for them to have the required 48 hours to review it and pass it before the Nov 23rd deadline; nonetheless, every proposal that was put on the table by one party's members & rejected by the committee members from the other party was covered as if might be part of a final package (one summary of proposals as of midweek here)...they even proposed to kick the decisions back to the regular congressional committees, even though their inability to agree was the reason for establishing a supercommittee in the first place...so what happens now? if you recall, the supercommittee was created by the budget control act which came out of the debt ceiling impasse, and it provided for an outline of $1.2 trillion in sequestered deficit cuts to be enacted starting fiscal 2013 (Oct 2012) should the supercommittee fail to produce a package...the sequestered cuts include a $600B cut to defense, 2% to medicare, and the remainder from other non-safety net discretionary spending; this deal, (all spending cuts & no tax increases), was what the tea party insisted on when the bargain was struck...but now the defense hawks are squawking & they're having second thoughts about the cuts to defense; both jim demint and john mccain have urged a rejection of the sequestered cuts, fearful it would "set off a swift decline of the United States as the world's leading military power." ...so it appears we might even expect an attempt by the republicans to rewrite provisions of the budget control act; so when all is said & done, this may not lead to cuts as bad as we first feared, unless the democrats negotiate away the upper hand they now have as they have so often in the past...

there hasnt been much progress on the other business that we're expecting congress to complete by year end, either...they've been waiting on the supercommittee to negotiate an extension of the payroll tax cut which was part of obama's much hyped jobs plan; with the administration still stumping for it, it may run into opposition, and if it isnt extended, the average taxpayer will find his paycheck $900 shorter next year; there are also a few bills to extend the extra unemployment rations past the end of the year; the stumbling block in this deficit centric congress is the expected $49 billion cost; should neither bill pass, another 2 million will be cutoff without a check after december 31st...and they have yet to take up the annual Medicare "doc fix"; in the late 90s, congress wrote provisions into medicare attempting to control rising payments to doctors; every year, the doctors threaten to quit medicare if the formula is enacted, so every year since congress has passed a "doc fix" to stop the cuts to doctors from taking effect; if they would fail to do that this year, doctors would see a 27.4% pay cut in their Medicare payments for 2012...at any rate, congress did get something done this week; you may recall the impasse over a continuing resolution at the beginning of the fiscal year (oct 1st), wherein eric cantor & his tea party band attempted to hold the federal budget hostage for offsetting cuts to a rider for increase FEMA disaster relief funding after hurricane ilene; well, late this week a "minibus" spending bill passed unheralded without difficulty or threat to shut the government down, including a continuing spending resolution to keep the government running through december 16th...

this week we saw the first felony charges brought against some of the perps in the version of foreclosure fraud popularly known as robo-signing… prosecutors from nevada attorney general Catherine Cortez Masto’s office filed a 606 count criminal indictment against two LPS (Lender Processing Services) supervisors who ran operations in which they hired dozens of $10/$12 per hour employees (who knew nothing about real estate) to sign thousands of affidavits per day testifying that foreclosure paperwork used to take someone’s house was in order, often many of them using the same title of “Linda Green, Vice President”, which was exposed nationally on 60 Minutes (posted here) and had not yet been prosecuted anywhere else; it’s hoped that these first prosecutions will slow down this version of mortgage fraud (which is still ongoing) and maybe fry some bigger fish as well; the Nevada AG’s office has said they will follow the fraud trail as far as it goes as “There’s no provision under the law for an industry to collectively decide to circumvent Nevada statutes.”…it’s obvious if we’re gonna put any of the perps in jail the slack will have to be taken up by state prosecutors, because under the obama administration, federal prosecutions for financial fraud are down 60% over the decade to at least the lowest in at least 20 years (graphic)…another ruling in a chapter 13 bankruptcy foreclosure has also slowed down bank activity in Arkansas, where it was ruled that JP Morgan had not been following proper procedures in that state, leaving foreclosed property that passed through their non-judicial foreclosure process in limbo, as title companies will not insure titles when the home sale did not comply with state law…other foreclosure cases in california & new york went against the banks as well, as judges are increasingly fed up with bank attorney BS…the California attorney general’s office has also subpoenaed Fannie Mae & Freddie Mac in a wide ranging investigation into lending and foreclosure practices by the GSEs, who are also coming under fire from congress for charging mortgage servicers millions of dollars in penalties for not moving fast enough on foreclosures…an audit by HUD on the condition of the FHA, which insures over a trillion dollars in home loans, indicated a 50% chance that it might also need a taxpayer bailout next year…

the Mortgage Bankers Association’s (MBA) reported on the number of home loans delinquent or in foreclosure in the 3rd quarter, with delinquencies seasonally adjusted; a total of 12.48%, or more than one in 8 loans, are either delinquent or in foreclosure, although the total is down slightly from the second quarter…included here are two state by state graphs produced from that report by bill mcbride at calculated risk; the top one shows loans in the foreclosure process by state, with red for states with a judicial foreclosure process, and blue for states with a non judicial process…the red spike at the end is florida, where almost 14 1/2 percent of homes are in foreclosure (these charts should both enlarge to full window size)…the lower chart shows delinquent loans by state, with light blue being loans 30 days delinquent, dark blue 60 days, yellow greater than 90 days, and red again being foreclosures…in this graph, states are in order by seriously delinquent + foreclosures...calculated risk also has another post wherein 4 more graphs are created from this MBA report, wherein delinquent loans are further divided by loan type; prime loans, subprime, FHA & VA…a separate report from the nonpartisan Center for Responsible Lending found that based on loans made between 2004 & 2008, we’re not even halfway through the foreclosure crisis; they further found that the hybrid & risky types of loans aggressively marketed during this period are more likely to get into trouble, and that minority races were more than twice as likely to lose their home as white households…seasonably adjusted housing starts for october were also reported as down slightly by the census bureau this week, at an annual rate of 628,000 residences; the same report indicated building permits were authorized at a seasonally adjusted annual rate of 653,000…housing starts have been trending in this range for about 3 years now, compared to the over 2 million annual rate that homes were being built at during the bubble, although the mix is now trending towards more multi-family units; at the current rate, multi-family starts will be in the 150K to 160k range in 2011, up from 104,000 in 2010…a residential remodeling index produced by BuildFax, which tracks remodeling permit activity, is now at its highest level ever, so there is some light in the construction trades tunnel…

seasonally adjusted retail sales for october came in estimated at 0.5% higher than september sales, & 7.2% higher than last years, and the report was accompanied by the typical media hoopla that goes goes with higher retail sales approaching the holidays…but a note on the report from goldman pointed out large gains in sales of electronics and online shopping, and thus they attributed the lion’s share of this months gain to the introduction of a new iPhone…and looking at the report itself (pdf), we can see that the annual YoY gain was carried by an increase of 19.4% in gasoline purchases from the last year, with all other categories but electronics in the low single digits…adjusted for inflation, october’s sales were still 8.3% below the seasonally adjusted pre-recession high of january 2006...though we dont have gains in same store sales yet to see if the trend towards upscale merchandisers that we noted last year is still holding, we do know that sales for sears & kmart were down, .7% & .9% respectively, lowes & penneys reported losses and store closings, and although walmart sales were up for the quarter for the first time in the last nine, sales gains at both walmart and target were driven by higher food sales, with more than half of walmart's sales now in the food aisles…then, to throw a curve into all the figures, the census bureau notes that the statistical confidence range on the reported sales is ±0.5%, because these retail sales reports are "based on a subsample of approximately 5,000 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms", which means, like unemployment figures, we are quoting exact numbers when the reality is far fuzzier…

you may have noticed that oil prices, & especially WTI (west texas intermediate), have been rising for the past six weeks, in spite of indications of economic weakness worldwide & renewed recession in europe, and that we’re now paying an average $3.436 for a gallon of regular gasoline; this U.S. average is up 1.2 cents from last week and 54.4 cents from a year ago, highest ever for november, even though U.S. gasoline demand is at a 12-year low…diesel fuel and home heating oil are also at records for this time of year…we’ve talked previously about the spread between the price of WTI & Brent crude oil (here & here), and that because WTI was landlocked in cushing OK, most US refineries were using imported oil at the Brent price, or paying extra freight to use WTI; this week it was revealed that a canadian company, enbridge, bought the 350,000-barrel-per-day seaway pipeline which conoco phillips had been using to ship lousiana sweet crude to its refineries in the midwest, and they are planning to reverse the flow on that pipeline to deliver WTI from cushing to the gulf coast…this is expected to bring WTI up to near the world price, and its traditional parity with Brent; it may result in slightly higher prices for refined products in the midwest, & some moderation of prices on the coasts, but as it will take 6 months to complete, will not provide relief for this year’s new england heating season…

in europe, we're still waiting to see whether another fall of rome will plunge the world into another dark ages; you'll recall last week i made brief mention of the fact that governments in both greece and italy had fallen & been replaced by unelected technocrats; early this week their was a bit of excitement because everyone found out that Mario Monti, the new italian prime minister, was the European Chairman of the Trilateral Commission, the think tank founded in 1973 by David Rockefeller, a leading member of the Bilderberg Group, & an international adviser to Goldman Sachs & Coca-Cola, and that the new Greek PM, Lucas Papademos, had previously been senior economist for the Boston Fed, & was also a member of the Trilateral Commission...clearly both had been approved by the Troika (IMF, EU, & ECB, ie, the International Monetary Fund, the European Union and European Central Bank) before being appointed, and citizens in both countries understood what had happened (after Monti installed a government entirely composed of unelected bankers & technocrats, italians were already calling it "government sachs") and inspectors from the troika were reported in greece yesterday to get signatures of submission from all greek political parties as condition for releasing the next loan tranche...but even with the obvious bank takeover of both troubled countries, and continued spanish & italian bond buying by the ECB, the markets werent calmed, and by the end of the week interest rates for spain, france, belgium, finland & the netherlands were all hitting new highs as well...again this week, the euro related links on my blog number over a hundred, so you can catch all of this weeks developments over there in the last quarter of this week's blogpost..

wealth as the major cause of poverty…

2011-11-15T06:08:00.001-08:00

Anonymous Educational Series- John Perkins Speaking Freely

the occupy LA teach-in

2011-11-14T07:34:00.001-08:00

bio: professor william black, UMKC; the bank regulator who jailed perps during the S&L crisis (website)

bio: robert reich – secretary of labor under bill clinton (website)

bio: robert scheer - writer, author, Editor in Chief – Truthdig

bio: ellen brown – author “Web of Debt” and other books

oklahoma fracking quakes & other notes, week ended nov 12th

2011-11-13T16:17:00.001-08:00

there werent any headline economic reports i normally cover this week, and the few reports that did come out showed little surprising, except for a new post recession high in exports...& there's not much certain out of the supercommittee which has been charged with conceiving a ten year budget plan, either, but we should watch what happens there closely this coming week, because there's only 11 days left for them to agree on a recommendation for cutting the deficit by $1.2 trillion, or else the automatic "sequestered" cuts kick in starting in fiscal 2013...and since the CBO (Congressional Budget Office) must score whatever plan they propose, ie, provide an official estimate of how much the plan would change the deficit, before it can be voted on, that length of time is even shorter, especially if new elements are introduced that the CBO hasnt previously figured on...it is this timeframe that makes the cuts to social security COLA by changing the inflation measure used, which we discussed previously, even more likely to be included, because that was scored by the CBO when it was first introduced...and there's another glitch in the schedule; the debt limit deal which created the supercommittee ruled that these committee members must have 48 hours to look at any proposal before voting on it...

at any rate, a small piece of legislation which was introduced as part of the obama jobs act did manage to pass this week; the tax break for companies that hire unemployed veterans; the legislation would give companies a $5,600 tax credit for each veteran they hired who had been unemployed for at least 6 months, with a smaller tax credit for hiring vets who had been jobless for less than six months; there were no votes against it in the senate, since no one wanted to be on record as against employing vets on veterans day, and unlike demands associated with other jobs packages, no one demanded offsetting spending cuts...there are still parts of the obama bill which have not received much attention; the payroll tax cut of 2% for 2011, which was initiated in the mcconnell-obama deal last december, will expire on december 31st; obama had proposed increasing it, but if no action is taken, that extra 2% will come out of everyones paycheck except for those who make more than $110,100, who will only be taxed up to that limit...the extension of unemployment rations will also expire at year end; without that, the time one will be able to be unemployed before being cut off will reduced to 26 weeks...when this was renewed last year, we discussed that because massive layoffs started at the end of 2008 and continued thru early 2009, a number of long term unemployed would run out of rations even with the 99 week extension, but that's been below my radar since; this week it was reported that it's worse than we expected; most of the unemployed no longer receive weekly checks at all; those still on rations now only number 48% of the 14 million who are unemployed; if the emergency rations expire, another 2 million would be cut off, the ratio of the unemployed receiving rations would be even lower, & poverty & homelessness would likely increase...

after much criticism over the method used over the past 50 years to compute poverty in the US, the census bureau released new poverty figures which corrected the count to allow for such safety net payments as unemployment comp, food stamps and the like...what makes the new report especially interesting was an attempt last week by 3 NYTimes reporters to front run the report with a story about how poverty wasnt really as bleak as had been previously reported, & showing how new calculation methods would produce much lower poverty figures...but when the census bureau finally released its report (PDF), the new numbers left mud on the NYT reporters faces, as the total number of people living in poverty America is now higher than the previous simple computation had showed, because the new supplemental measure does not just take into account the positive effects of tax credits and the safety net programs, it also calculated the negative effects of childcare costs, out-of-pocket medical costs, geographic differences and the country's overall standard of living...so, according to the old method, the official poverty rate in 2010 was 15.2%, with the new statistical adjustments it's now up to 16.0%... the new supplement does show a lower percentage of children living in poverty, but that's offset by an even larger number of senior citizens who've fallen below the poverty line...the adjacent chart, from the Center on Budget and Policy Priorities, which should enlarge, uses a different definition of poverty, but gives you a picture of the impact of the safety net programs, many of which have been under attack in congress, on the overall level of poverty in the US…

in a similar vein, a Brookings report on the Pew Economic Mobility Project (EMP) put to test the theory that anyone can rise above their birth status if they just work hard enough at it; covered in a long article in the National Review, it showed that while 60% of the last generation who were born into the upper class remained there into adulthood, only 17% of those born into the bottom one fifth made it to the top two/fifths by the time they were 40...so if you want to do well in this country, you best pick the right parents...last sunday i posted a table resulting from a study by the german bertelsmann stiftung foundation comparing the OECD countries by their social justice scores; the title i used tells the story: we’re (not quite) at the bottom of the heap...

the new september CoreLogic home price index was out this week, and not being seasonally adjusted it showed a second straight month over month decline of 1.1%; this is a weighted index 3 month index used by the Fed where the most recent month counts heaviest...compared to the same month last year year, prices have fallen 4.1%, and they're expected to fall through the winter months as they normally do...according to a quarterly report released by Zillow this week, 28.6% of homeowners with mortgages now owe more on their loans than their homes are worth; according to a CNBC article on that report, half of US homeowners now have "effective" negative equity, meaning if they attempted to sell their house, the amount realized after real estate fees & the like would be less than the amount they still owe...TransUnion reported that the number of serious mortgage delinquencies is now higher than any time since 2009; 5.88% of homeowners have now missed two or more house payments...according to RealtyTrac, there was also an 7% increase in foreclosure activity in october over september's count; it's now at the highest level it's been in 7 months; however, in Nevada, where they passed a law effective October 1 that made it a felony to falsify a real estate title, foreclosures fell 88%...foreclosures also fell from triple digits per day to single digits after a similar law in new york was implemented, where attorneys are now required to verify the accuracy of documents they submit to the court...

we're still watching developments in the proposed multistate mortgage settlement which would release the banks from claims against them for all that fraud; according to the latest, the 16 banks that do mortgage servicing who've been guilty of submitting up to 10,000 false affidavits per month would pay fines of 5 billion, write down $20 billion of the approximately $700 billion of underwater mortgages, and promise to never do it again...in exchange, they would receive immunity from all servicing claims, all mortgage origination claims including discrimation, & a release of all MERS-related claims, leaving the shell corporation MERS, which has no assets, as sole defendant for MERS related lawsuits...

you may have heard on the news that there were a few large earthquakes in oklahoma over the past weekend...normally, i dont pay much attention to quakes, but this roused my curiosity because i knew that oklahoma was one of the areas where there were shale gas plays being worked by hydraulic fracturing, more commonly known as fracking...initial reports dismissed the connection, but since i knew that fracking had been previously identified as a cause of minor earthquakes in blackpool england, and swarms of small quakes in arkansas, i did some digging for more information...reports had the 5.6 quake, the largest in oklahoma history, at a depth of 3 miles, and searching the woodford shale, which is the shale formation where gas is being extracted in the area, i found "The Woodford Shale is considered to be one of the most important ... and ranges in depth from 13000 to more than 40000 ft (estimated)." (pdf)... further checking the USGS record, i found there were 15 quakes over 3.0 magnitude about 5km deep in the same area in a 24 hour period...in fact, over a 4 day period, more than 1/4 of the worldwide earthquakes over 2.5 on the USGS record were in Oklahoma at the same depth, with large aftershocks continuing....obviously, all this activity didnt go unnoticed, & others started asking questions, & by the end of the week there were reports that both the USGS & the US Army had confirmed man made earthquakes associated with injecting water into deep rock formations; AP also reported Oklahoma had only experienced about 50 earthquakes a year before fracking, but last year there were 1,047 small quakes in the area...some of you are quite familiar with fracking, but for those who arent, fracking is the process of injecting millions of gallons of water, sand and chemicals into wells at extremely high pressure in order to break up deep rock formations that have gas or oil trapped in them...it's not a new process, but it's now become common in the US where most of our easy to get to domestic oil reservoirs are depleted...there are several environmental concerns associated with the practice; first, it takes copious amounts of water (about 5 million gallons per well, with thousands of wells per field), which becomes polluted by the hundreds of chemical additives, including some which are toxic, known carcinogens, or neurotoxins...inadequate water alone has inhibited fracking in some dry western states, and water must be trucked in from the Missouri river to work the bakken oil shale in north dakota (no link; request bakken water study from my files)...there have been dozens of reports of the pollutants reaching home water supplies, and small streams in pennsylvania, where some civil war era disposal rights are grandfathered in; even this week there was a SciAm article on one such incident in Pavillion, Wyo, where wells for 42 homes were poisoned...moreover, some home water supplies have been contaminated by the methane gas itself, such that water coming out of the tap is actually flammable...it is because of these problems that fracking has been banned in france, and moratoriums on it put in place in South Africa and New South Wales Australia...although fracking was originally exempted from US regulation in 2005, the EPA has recently agreed to reopen an investigation into its impacts on water quality...in addition, significant amounts of methane gas escape into the atmosphere during fracking operations, and as methane is 25 times as potent a heat-trapping gas as CO2, but 72 times more potent over 20 years, using gas from fracking could have twice as potent a near term affect on the climate as burning an BTU equivalent amount of coal...although it would seem that blasting large portions of the bedrock into tiny fragments might be the cause of the earthquake problems, it is not the fracking itself that is implicated in earthquakes, but rather the common practice of injecting the contaminated spent frack water into disposal wells far underground; this water is thought to seep through cracks in the bedrock and lubricate previously dormant faults where pressure had been building; then, once one fault breaks, adjacent rock formations have pressure applied from the shifting, resulting in the quake swarm phenomena that has been observed...according to a new report by Common Cause, the petrochemical industry has pumped millions of dollars into Congress to avoid regulation of fracking, and this past week CNBC obtained audiotapes of an industry conference in houston where it was recommended to oil & gas execs that they hire former military “psy ops” specialists to plan tactics against citizen "insurgencies"...

it was also another busy week in europe, with prime ministers in both greece & italy stepping down & being replaced, and europe still unable to fund their trillion dollar bailout fund in order to make sure the bankers get paid; there’s a hundred or so links on the euromess included in this week's blogpost, most of which relate to european politics, so if you want the entire play by play you'll have to go to the last quarter of the post to find them...

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…

notes on the week ended Nov 5th

2011-11-07T05:33:00.001-08:00

as has become the norm, the unemployment report for october released by the BLS on friday was nothing to write home about; according to the more reliable establishment survey, only 80,000 non farm jobs were added, with 24,000 government job losses subtracted from the 104,000 jobs added by the private sector (remember, these numbers are from a small sample and inexact)...the silver lining was another substantial revision in the jobs added in the 2 previous months, with september being revised up to 158,000 from 103,000, and august revised up from 57,000 to 104,000, which is pretty spectacular if you recall that august originally reported a goose egg...the jobs added in those 3 months together are just about enough to cover the increase in the working age population & no more, so about all we're doing is treading water...the household survey, from an even smaller sampling of only 60,000 households, reported an increase of 277,000 jobs, and although the labor force increased by 181,000, that was enough to lower the headline unemployment rate to 9.0%...earlier in the year, the household survey was showing lower numbers than the establishment survey, but they've reversed that over the past three months, & i'd guess the two surveys would now be pretty close if annual numbers were compared...

other stats from the report include the average workweek unchanged at 34.3 hours, and the average private hourly pay up 5 cents to $23.19 (remember what we know about averages; this could be one exec & 100 peons at minimum wage)...nonetheless, adjusting for inflation, weekly earnings are down about 2% over last year...sectors contributing the most jobs included business services, health care, and retail, and of course state & local government was the big negative…the employment/population ratio increased to 58.4% from 58.3%, but the labor force participation rate remained unchanged at 64.2%....there was also improvement in other areas that have been problems; the U-6 measure, which includes those forced to accept part time work when they want full time work, declined from 16.5% to 16.2%, as the involuntary parttimers decreased by 374,000 to 8.9 million, and the number of long term unemployed, ie., those who've been out of work more than half a year, declined from 6.2 million to 5.9 million, although there arent statistics differentiating those who got a job from those who quit looking and thus arent counted... the adjacent chart is our first read on seasonal hiring, with red indicating annual october hires, yellow showing november hires, & blue those hired in december…in october, retailers hired 141,500 seasonal workers, which is about par for a normal holiday season…the chart at the top, also from calculated risk, shows total jobs losses from the beginning of this recession compared to the other post war recessions…both charts should expand to full size in a new tab or window if you click on them...

also released this week was the monthly mortgage monitor from LPS Analytics, which is the one report which probably tells us more about the mortgage crisis & condition of the housing sector than all the rest of the housing reports put together…you’ve heard this story before; people stop paying on their mortgages for years and although foreclosure notices are sent out, the process stalls & homeowners remain in limbo…this report, for september, showed that the number of days homeowners remain in their homes while in foreclosure has again lengthened, to an average of 624 days; that timeline has increased every month this year and is now 140 days more than the same month last year; in judicial states, where the laws force banks to foreclose through the courts, the average is even longer, at 761 days, or over two years…of the 2.17 million loans in foreclosure, which is now 4.18% of all mortgages, 72% havent made a payment in a year, and 40% havent made a payment in 2 years; in the accompanying chart, which shows the number of loans in foreclosure by length of delinquency, you can see that there has never been a monthly decrease in the orange segment, ie, those not making a house payment for over 2 years…moreover, new problem loan rates increased sharply over the last two months, with 1.6 percent of loans that were current six months ago now 60 or more days in arrears, so the number entering foreclosure is likely to increase; there are now 1.84 million loans over 90 days delinquent, & 2.36 million loans less than 90 days delinquent, in addition to those in foreclosure…

so what can we make of this? i think it’s safe to assume that in markets where houses are not moving, banks would rather have the houses they claim they own occupied than vacant (remember, they cant prove ownership anymore); a separate report from Housing Pulse showed nearly 15% of foreclosed homes damaged so seriously they needed major repairs before they were habitable, reducing their marketable price by 20-30%; we might also guess that in judicial states, where the banks have to “show the note” in court, they know they cant produce paperwork without forgery, because paperwork doesnt exist, they never recorded the mortgage assignments, & they are reluctant to proceed until they get the immunity from prosecution promised them by the deal worked out for them by the administration (specifically, Treasury & the OCC) and the majority of attorneys general who are taking part in the negotiated foreclosure fraud settlement...and there's been a recent change proposed to that deal which on the surface might give it more traction; originally, the banks were to pay a relatively small fine ($25 billion), say 5 hail marys, promise to sin no more, and all their sins would be forgiven; however, in the new version, only $3.5 to $5 billion of the fine would be paid in cash; the rest would consist of credits to banks that agree to reduce the amount of principal owed on mortgages; however, the banks have no legal authority to write-downs loans that they service on behalf of investors, so less than 20% of underwater mortgagees might be helped by this settlement, still leaving the rest - nearly 9 million homeowners - still stuck with the terms they now have...moreover, the banks have not given up the practice of fraudulently fabricating mortgage assignments and there is no indication that this settlement even addresses that ongoing crime...

Freddie Mac & Fannie Mae also reported serious delinquency rates on the mortgages that they hold; for Fannie, serious single family delinquencies were down to 4.00% in september from 4.03% in august, and down from 4.56% a year ago; Freddie Mac reported an increase from 3.49% to 3.51%, compared to 3.80% a year ago...Freddie Mac also reported a 3rd quarter loss of $4.4 billon, and in turn asked for an additional $6 billion bailout from taxpayers, bringing their total cost since they were put into receivership to $72.2 billion...and outgoing Freddie Mac CEO Ed Haldeman will receive a $4 million bonus for a job well done...

we’re getting close to the time the congressional supercommittee must come up with a deficit-cutting plan, lest the automatic $1.2 trillion in “sequestered” budget cuts be enacted; even though they’ve been quiet about their negotiations, social security is clearly on the table, since they havent received much in the way of under the table cash from the old folks…they heard from catfood commission chairmen simpson & bowles this week, who seemed to advise raising the eligibly age for medicare…a tiny tax on financial speculation which has been requested by european leaders is getting no traction…since whatever plan they might come up with will have to be scored by the CBO before it can go to the full congress, a process which could take a couple weeks, it would seem that any delay past this coming week would be cutting it close, since this must be passed by thanksgiving…considering that half the sequestered cuts are to defense, which hasnt been mentioned in committee discussions, i think our best hope is that the committee fails to compromise…

also in congress, the portion of the obama jobs act that involved a $60 billion funding of transportation infrastructure projects was introduced in the Senate, but it failed to get the 60 votes needed to reach the floor….congressional democrats introduced a bill in the house to renew the extension of unemployment rations that was passed last december, which would give those in the worst hit states up to 99 weeks of rations instead of the standard 26 weeks, but it has not yet been taken up, because the house was busy with other critical legislation, such as re-affirming “in God We Trust” as the national motto, and debating silver & gold commemorative coins for baseball…

the Fed also held an (FOMC) Open Market Committee meeting this week, which they do approximately monthly (dates for future meetings are set at the meetings), at which they re-committed to holding interest rates low, re-affirmed operation twist, and made virtually no changes to their post meeting statement; much to the dismay of the econo-bloggers who feel that major monetary intervention is needed; there were at least 2 dozen posts advising or advocating changes to monetary policy, if you’re interested, links to them are at the beginning of this week’s blog post…my reason for mentioning this Fed meeting here is in the adjacent table, which shows the changes to the Fed’s economic forecasts for this year and beyond (pdf) from those they made at the June FOMC meeting; notice that they’ve reduced the projected GDP growth rate considerably, and now expect unemployment to remain near 8% through 2013…yet, in the face of this forecast, and projections of below par inflation as far as the eye can see, they took no action…

it was a wild week in europe; stories changed daily or even more often, leaving many of the analytical US blog posts dealing with the ramifications of a story reported earlier already overtaken by events by the time they were posted and hence made moot...early in the week, there were reports that both ireland & portugal wanted to renegotiate a writedown of their debts similar to the haircut enforced on greek investors, while sarkozy & the head of the euro bailout fund, Klaus Regling, went hat in hand to china and japan to ask for their participation in the expansion of the EFSF (financial stability fund) from €440bn to €1 trillion...meanwhile, the euphoria over the agreement of last wednesday waned in the face of higher italian borrowing costs, with 5 year rates climbing to euro-era highs at 5.80% and the 10-year over 6% & rising daily despite continued ECB buying of italian debt...but the wheels really came off the euro-bus when greek prime minister george papandreou, facing an increasingly disgruntled public, unexpectedly called for a referendum on the rescue package & a vote of confidence, & the markets, especially banks exposed to greek debt, went to hell...opposition politicians, as well as several in papandreou's own party condemned the move, and euro-group chairman juncker warned of of a greek bankruptcy if such a vote failed to ratify the bailout...with the greek government in chaos, and rumors of a possible coup, the defence minister quietly replaced the country’s top 4 generals (army, navy, air force, & natl defense) with party loyalists (that athens news story has since been changed to say it had been planned earlier)...with the bailout package unraveling, a first attempt to float a relatively small $3 billion 10 year bond to fund the irish bailout & expand the EFSF had to be withdrawn "due to market conditions"...subsequently, merkel & sarkozy (now dubbed merkozy) threatened to withhold funds or expel greece from the eurozone if greek citizens were allowed an opinion on their slavery, the greek cabinet split, and the finance minister, Evangelos Venizelos, went straight from his hospital bed to plead the Greek case before the G20 without consulting the prime minister and to argue for greek submission without the referendum...so papandreou caved, scrapped the plans for a vote, and called an emergency meeting with his opposition, and thus europe's elites were saved from a referendum...even though he survived the confidence vote on friday, word is that papandreou will now step aside and venizelos is expected to form a new government...while all this was going on, similar political wrangling was going on in italy, where scandal ridden prime minister silvio berlusconi was holding a tighter rein and refusing to cooperate with the troika; merkozy responded by sending eurozone inspectors to italy to go over the country's books...facing deteriorating economic conditions across the eurozone, newly installed ECB chairman Mario Draghi cut interest rates by .25 to 1.25%, giving some hope for relief from the tight policies of his predecessor Jean-Claude Trichet, who will likely go down as one of Europe's greatest villains when all is said & done...but after a few hours of euphoria about the rate cut, bond rates in europe headed up again, some to new records after Draghi gave a speech reminiscent of trichet & indicative that ECB policies wouldnt be changing that much after all...economically, europe is going to hell in a handbasket...german manufacturing, which contracted for the first time in 2 years, led the overall eurozone manufacturing index into negative territory, with Italy's index dropping 5 points to 43.3 (50 is break even)...overall unemployment in europe went up as well, to 10.2%, with austerity measures driving spain's rate to 22.6% and greece's rate to 17.6...although the ECB is holding their forecast for european growth to slow to zero, JP Morgan is now forecasting a "longer & deeper' recession in europe, with all the peripherals save ireland experiencing severe austerity imposed contraction...it's hard to say how a collapse in europe might affect us; morgan stanley has often been mentioned as a major counterparty at risk as a writer of CDS (insurance) on european debt; MF global has already failed betting one peripheral debt, & certainly JP Morgan & Goldman Sachs are heavily involved in selling insurance on the PIIGS as well...are the banks betting europe is too big to fail, or that the Fed will bail them out if it does? it doesnt seem like the ECB is prone to massive monetary intervention, but one wonders what they’ll do if the euro-countries start falling like dominoes...the austerity imposed on the peripherals by the core countries almost assures they cant meet their deficit targets, so further defaults seem to be inevitable…& what about US multinationals that have significant sales in europe? although there was a big push at the G20 meetings to have the IMF print more of its Special Drawing Rights in an effort to backstop the EFSF, world leaders failed to agree on additional funding, so it appears europe will be on its own for the time being...the rest of the world aint doing so hot either; in china, their Industrial PMI (Purchasing Managers’ Index) fell to its lowest in nearly 3 years at 50.4, and in britain, an influential think tank estimates that they have a 70% of returning to a recession, after cutbacks ostensibly intended to control their deficit backfired..

we’re (not quite) at the bottom of the heap

2011-11-06T16:41:00.001-08:00

the chart below rates the OECD countries by their social justice scores; at least we’re a little better than turkey & greece

(sourced from the sidebar at the NYtimes, “America’s Exploding Pipe Dream” )

see also “shame on US!”, a similar chart with US on the bottom in economic & social measures of well-being...

notes on the week ended Oct 29th

2011-10-30T17:25:00.001-07:00

there were a number of reports out this week that i felt were related; so hopefully as i run through the list we'll be able to connect the dots....let's start at the top of the list with the report that covers the value of all goods & services in the US, the first estimate for 3rd quarter GDP from the BEA, which grew at an annualized rate of 2.5% over the weak 2nd quarter, the best growth since the 3rd quarter last year...and the GDP component which i've learned to check first, inventories, were down a little over 1%, so this was solid growth, not just shelf stocking; & as there is a known relationship between GDP & unemployment, we can at least say that growth at this rate will not lead to an increase in job losses, though it's not at a level to bring it down rapidly either...in a change from previous reports, government was not a drag; federal spending increased by 2%, with defense spending more than offsetting the decline in non-defense spending, and that was enough to neutralize the decline in the state & local components...probably the most important component, personal consumption expenditures, anchored the GDP increase by growing 2.4% (all figures are annualized rates, 3rd qtr over 2nd), with a 4% increase in durable goods, reflecting the rebound in autos from the japan supply disruption of the 2nd quarter...(auto sales, btw, are looking good for october as well)...what really pulled the GDP up, though, was investment spending; there were increases in non-residential structures of 13.3%, and equipment & software of 17.4%; even residential investment increased 2.4%...

what i want to focus on next is the personal consumption expenditures, because consumer spending is still 2/3 of the economy, and the Personal Income and Outlays report for september was also released by the BEA this week; consistent with the kind of numbers i've been seeing the past couple of months, it showed that consumer spending rose 0.6 percent last month, but disposable personal income only increased 0.1% for the month...this has been the pattern, with expenditures outpacing income, for several months; ie, in august, both were lower, with spending up only 0.2 while incomes were down 0.1; so obviously personal savings have been falling, and they're now at their lowest level since december 2007, which was before the recession really took hold...so the spending at the rate we're now seeing doesnt appear to be unsustainable...

the box people are in may be what we're seeing in the 3 reports on consumer sentiment that were reported this week; first, we saw the Conference Board index of consumer confidence fall to 39.8, its lowest level since March 2009 & the lowest non-recession reading of all time, from an already low reading of 46.4 in September…the WSJ further reported that confidence fell most among high income consumers; not a good sign for the coming season, as you’ll recall we’ve observed that retail sales gains have been concentrated in the upscale chains; the next report was the final reuters / UofM index of consumer sentiment for october, which showed a slight uptick to 60.9, up from the 59.4 reading for september; & lastly, the bloomberg consumer comfort index Index dropped to -51.1 from minus 48.4 the prior period; moreover, 95% of the people surveyed had a negative opinion about the economy, a low reading comparable to the depth of the recession…

although not directly related to consumer spending or sentiment, the congressional budget office came out with a senate requested study which compared trends in the distribution of household income over the 1979 to 2007 timeframe; it showed that although real average household income grew 62% across the entire population, when the gains were separated by income groups, households at the higher end of the income scale incomes rose quite a bit more than it did for households in the middle and at the lower end of the income scale…ive got one chart from the report here; labelled "growth in real after tax income from 1979 to 2007", what it shows exactly is that for the lowest 20%, incomes gained only 18%; for the middle 60%, income gains averaged under 40%, & for the top quintile, household income grew by over 65 percent…this meant that of the total household income in the US, 53% was going to the top 20%, compared with 43% in 1979…further separating out the top 1% of households, the CBO found that their real (inflation adjusted) after-tax household income grew by 275 percent; thus the share of after-tax household income for the top 1 percent of the population more than doubled, climbing from nearly 8 percent in 1979 to 17 percent in 2007…let me explain this further by creating my own example; a typical family with a $20,000 income in 1979 would have had their income grow to $23,600 by 2007, on the other hand, a typical corporate CEO making $500,000 in 1979 would have seen his income grow to $1,875,000 by 2007…

this is something bloggers & the media should be aware of when writing about personal consumption expenditures, disposable personal income, and household saving rates; essentially, more than half of those gross reported figures really only apply to 20% of the population...we really need separate reports for consumption, income, & savings rates for the rest of us....

the Center on Budget and Policy Priorities observed that this report meant that virtually all of the decline in the bottom 80% of households share of the nations income ended up going to the top 1%; this can be illustrated by a table from a similar earlier study, which shows that if national household incomes were all growing at the same rate, a family in the middle quintile should have been seeing an annual income increase of $10,100, instead, the lion's share of increases in national household income has been going to the top 1%...the adjacent table was posted this week by kevin drum with a comment that "for practical purposes, every year about $700 billion in income is being sucked directly out of the hands of the poor and the middle class and shoveled into the hands of the rich"...

the home price index most used by the media, the Case-Shiller index, was released this past week for the 3 months ending august; not seasonally adjusted, both the 10 city & 20 city composites were up 0.2%, about in line with a normal seasonal increase for the summer months…bill mcbride, who seasonally adjusts case-shiller’s index, has the 10 city down .2% and the 20 city down .1%, with the composite 20 down 32% from the peak; S&P had 10 of the 20 cities showing price gains, seasonally adjusted, prices only increased in 6 cities; the WSJ produces an interactive sortable table of home prices of the 20 cities in the index, if you’re interested in more detail…the FHFA (Federal Housing Finance Agency), which heads up Fannie & Freddie, also reported home prices for august, showing they fell 0.1% from july and 4% from a year ago; regions hardest hit were the southwest & far west…other price indexes which reported earlier include CoreLogic, which reported home prices for august decreased 0.4 percent on a month-over-month basis; FNC, whose 30 city index showed 0.8% decline in august, and Radar Logic, whose 25 city index also declined 0.8%… the census bureau reported seasonally adjusted new home sales for september were up 5.7% from august to 313,000, which is the number they report after the adjustment & likely has little to do with reality; they also report the median sales price of new homes sold was $204,400, down 2.2% from $209,100 in august, & that the average sale price fell to $243,900 from $246,000 in august, which was the lowest since early 2009…moody’s also reported its commercial real estate index for august, which covers prices for malls, warehouses & the like, and it showed prices up 2.4% over july, and 7.2% over the same month last year…commercial real estate is still averaging 41% lower than the peak in 2007, but the pending disaster for small banks, which hold much of the CRE paper, that we feared last year when prices were still falling seems to have been alleviated…but Moody’s warns that CMBS underwriting standards are again becoming lax, with the prevalence of interest only debt rising from 21.1% in the 2nd quarter to 33.6% in the 3rd quarter…

i should make mention of the home mortgage relief program that obama touted in several speeches this week, aka Harp II; first, this is only for homeowners whose mortgage has been owned or guaranteed by Fannie or Freddie since may of 2009; homeowners must also be current on their house payments for 6 months to qualify; the plan doesnt include principal reductions, just refinancing at todays lower rates; and the banks may not go along any more than they did with the first version of HARP…Obama also announced a similar program for college grads with federally held student debt, whereby they could cut their interest by as much as half a percent & reduce their payback rate to 10% of their “discretionary income”, which should serve to keep them as indentured slaves that much longer...and i should also note that the 6 democrats on the supercommittee, which is charged with finding $1.2 trillion in deficit reductions over 10 years by thanksgiving, have proposed a $3 trillion dollar plan with deep cuts to medicare, a jobs package, and tax increases, which apparently will be rejected by the 6 republicans on the committee...

after 9 intense meetings over 5 days, the european leaders late wednesday came up with a plan that they hope will get them out of daily crisis mode for a while; markets rallied & there was dancing in the streets... first, they've told the bondholders of greek debt that they will voluntarily accept 50% of the face value of the bonds they now hold in new bonds of an undetermined maturity (probably long) and at a yet to be set yield (probably low)...(those bondholders have been told they will do this voluntarily, so they cant collect on their bond insurance (CDS) because no one knows where the CDS bodies are buried & we wouldnt want morgan stanley to fail like lehman would we?), & oh, btw, greek bonds held by the ECB and IMF don't get a haircut, so the greek govt didn't get half of their debt cut - only the part of it investors hold, so they'll be in trouble again soon...to help clairfy this for you, i've posted explaining yet another euro bailout plan…(a youtube animation)...the second part of the plan involves a €106 billion recapitalization of weak banks, normally done by selling stock but who would want to buy a weak italian bank? so what the banks will likely do is sell their best assets & shrink, & thats just what europe needs, monetary contraction, right? the last part of the plan is an expansion of their EFSF, aka the bailout fund, from €440bn to over €1 trillion, so that it will be large enough to cover spain & italy, not achieved by adding any funds, but by leveraging the funds currently available (less than the €440bn cause some's been spent) and trying to get suckers from china, brazil & japan to buy in; what, you say the chinese aint that dumb? of course not!! china will get to buy the senior tranches of the special-purpose vehicles (SPVs) that the EFSF will capitalise, leaving the europeans holding the subordinated debt, which is guaranteed by spain & the italians, among others...sounds like a plan, huh? lets see if it lasts a week...& as a euro crisis bonus, i'll link you to the NY Times 18X21 euro mega-graphic, which shows the inter-connectivemess of debt in europe & around the world...

explaining yet another euro bailout plan…

2011-10-29T17:02:00.001-07:00

notes on the week ended Oct 22nd

2011-10-24T15:34:00.001-07:00

there was an interesting and probably nationally significant ruling on real estate ownership handed down by the Massachusetts Supreme Court on tuesday that will at least affect those homes with clouded titles which have be foreclosed on and then sold by the banks, and may affect any other number of homes in which the banks failed to convey title properly through securitization and thus have clouded the titles; in the case of "Bevilacqua v. Rodriguez", (scribd) the court ruled that a home buyer cannot claim title to a home if the bank that sold it to him didn’t have the right to foreclose on the original owner (a legal clarification of the ruling by law professor adam levitin is here)...this case was a followup to a 2009 decision, U.S. Bank v. Ibanez, discussed here, wherein a foreclosure initiated in 2006 was overturned because the bank failed to show proof of ownership on the home that they foreclosed on, because the documentation of the numerous title transfers during securitization was never filed...i have long known this to be a problem, but seeing the property records of my neighbors declared "unreliable and unverifiable" last week sure brought the problem into focus; i assume that any "homeowner" losses that may occur as a result of this decision will be covered by the title insurance companies, but i have not seen an official opinion on this either..nor do i have a clue what one's liability would be should one attempt to sell a home with such a clouded title...this decision still seems to leave those toxic titles transferred during this process out there in limbo, and whether all the kings horses & all the kings men will ever be able to put this mess back together again still remains to be seen...

there was what was called a “trial balloon” floated in the mortgage-fraud settlement being pushed by the administration, the OCC, & the majority of the state attorney generals whereby the banks would pay a small fine & be released from future liability in exchange for refinancing homes that are underwater, current on payments, & owned by the banks outright (ie not securitized) – the banks would be giving up the higher income stream they’ve been receiving from those few underwater homeowners who’ve been unable to refinance, but they cant do that for the majority of loans that are securitized because there are 3rd parties are involved…as of now, 7 attorney generals remain opposed to the settlement, & california’s kamala harris, who’s been on & off the fence, this week subpoenaed Bank of America for selling toxic mortgage-backed securities to california investors “under false pretenses”...

in a separate BofA issue, associated with it’s third quarter accounting gimmickry, the bank moved what was said to be $75 trillion in risky derivatives from its Merrill Lynch unit to a bank subsidiary “flush with insured deposits”, with Fed approval, but over strenuous objections from the FDIC…the derivatives themselves arent insured by the FDIC, but they would have senior status over the deposits, which means that the bank could use its deposit base to pay off the derivatives if necessary, forcing the FDIC to step in to make the depositors whole…as bad as all that is, what i want to focus on is the amount, $75 trillion, which was confirmed by the comptroller of the currency; that's 5 times the annual GDP of the entire country! i’ve had a long running unease about the nominal amounts of derivatives outstanding, now said to be $600 trillion, down from a crisis high of over a quadrillion, but i’ve always been told not to worry, that’s only the nominal amount, they cancel each other out when they’re settled and the banksters pocket their fractional percentages; that may be true in the universe of derivatives, but any subset of them is enough to destabilize a systemically important institution – just ask AIG!

there were a few monthly housing related reports to note this week; first, seasonably adjusted existing home sales fell from an annual rate of 5.06 million in august to a rate of 4.91 in september; still 11.3 percent above the 4.41 million unit pace the same month last year; sellers were said to be holding properties off the market, hoping for higher prices...but not boding well for future sales, mortgage applications fell to their lowest in 15 years this week, after a post "operation twist" spike in mortgage rates, which had been at records lows....new home starts in september, at a seasonally adjusted annual rate of 658,000, were 15% higher than september, almost entirely on the strength of multi-family starts (click adjacent chart); realizing that housing starts usually slow going into fall, i meant to check both of these reports for actual figures but time didnt permit…bill mcbride at calculated risk, who follows housing closer than anyone, forecast that this years housing completions will again hit a record low, breaking last years record, but that rising starts of multifamily units will showing completions of those rising by year end (see his graphs)

realizing we’ve got an inventory of 3.5 million homes for sale nationwide, and an even larger shadow inventory of homes held off the market or delinquent and likely to be foreclosed on, two senators introduced a bill on thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the US; something i’ve always advocated (i actually thought we could auction off such visas)…but the bill falls short of what i would like to see; first, in the high mcmansion level limit, which wouldnt apply to most of our housing inventory, and second in that the visas are for residence only, hence immigrants wouldn't able to work…

i should mention the flurry of excitement in the econo-blogosphere over a goldman sachs economic note which recommended the Fed abandon their low inflation target and instead target nominal GDP, which was subsequently endorsed by paul krugman; this isnt a new idea, in fact, it's been advocated for years by a couple market monetarists who've i've always thought to be somewhat quixotic, scott sumner and david beckworth...obviously, IF the Fed could goose nominal GDP, it would likely increase employment, and i dont see inflation as a problem; but there has been no indication from anyone at the Fed they would consider targeting nominal GDP (written as NGDP), nor is that considered to be part of the Fed's mandate, so there'd likely be political pushback against such a change; nonetheless, if you're interested in the proposals, there's a bunch of links on it near the beginning of this weeks GGO blogpost, right after the handful on bernanke's speech...

as we figured would happen last week, the president's jobs bill is being re-introduced in the Senate piecemeal, to see what parts of it might pass; the first segment introduced this week was a $35 billion bill to help re-hire teachers police and firefighters who've been laid off at the local level; but senate republicans, joined by three conservative members of the democratic caucus, blocked any floor debate on it in a 50-50 vote to support a filibuster, so it went nowhere; indications are also that the supercommittee of congress which is charged with finding $1.2 trillion of spending cuts is also going nowhere, which may mean the automatic $1.2 trillion in cuts negotiated during the debt limit standoff would take effect after thanksgiving; on wednesday, the supercommittee was said to have met privately with the notorious "gang of six", who had advocated cuts to medicare, social security COLA, tax cuts for the rich, & an end to the mortgage interest deduction...

i should also mention that a new study released this week which was led by physicist Richard Muller, a prominent climate-change skeptic, and funded in part by the anti-science Koch brothers, reviewed more than a billion temperature records dating back to the 1800s from 15 sources around the world and confirmed what NASA & the british Met office have been saying all along, that the planet has in fact warmed by 1.8F since the 1950s; while this should settle it for the scientists, there's already been pushback from the deniers...i've always accepted that the planet was warming, but i’ve always suspected that heating incidental to human activity might be a greater contributor to AGW than the greenhouse effect, but i had never seen it quantified; but this week Takashi Hirose, a japanese scientist, in showing that nuclear power is no answer to warming, computed that in japan's nuclear energy program before fukushima, two thirds of the heat energy, or approximately 100,000,000 kilowatts of energy per day, was being lost; meaning "that every day they were pumping into the sea energy equivalent to 100 of the atomic bombs dropped on Hiroshima"...i am guessing the heat loss from other forms of electric generation is comparable, but whatever the case, it's obvious that our heating of the planet goes far beyond the heat trapped by human generated greenhouse gases...a separate studied show that our global warming is already baked in, & that sea levels would continue to rise for 500 years irregardless, so i'd think that rather than being overly concerned about mitigation, adaption planning should become part of policy...

early this week, articles were appearing saying that Oct 23 was some kind of deadline for europe, suggesting that if there wasnt an agreement by today, europe would go to hell in a handbasket and the rest of the world would quickly follow...but first germany threw cold water on the timetable, then france, threatened by a moodys downgrade, backed off of their commitment to a $2 trillion plan...so now they are planning a six day marathon meeting starting today to iron out their differences; although they approved the next tranche of funds for greece, they still have yet to increase the funding of their EFSF to cover spain & italy (whose ten year bond rate spiked to over 6% this week), renegotiate the haircut on greek debt from 21% to something near 60%, and come up with a better plan for bank recapitalization than the €80bn floated this week (some estimates are of as much as €413 billion of recap)…& of course, the european whole play by play is at the end of this week's blogpost...

notes on the week ended Oct 15th

2011-10-16T17:20:00.001-07:00

as expected, the obama stimulus, aka "the american jobs act", that was introduced with the hoopla of speech before a televised joint session of congress on sept 8th was defeated in the senate on tuesday - or i should say it wasnt even taken up, as two democrats joined the republicans to assure that it wouldnt have nearly enough votes to get the 60 votes needed to shut off an expected filibuster & have it considered; at least now it wont even have to go to the republican house to be defeated...the administration is now expected to turn to what components of the plan that might be salvaged and pass both houses of congress piecemeal...its likely that the portion of the payroll tax cut that is now in place (as of last december's mcconnell-obama deal) will be re-introduced, and possibly some of the hiring incentives for business may also see the light of day if introduced separately...but the critical portion of that package we'll have to keep our eyes on would be the $49 billion extension of unemployment rations to cover the 6 million of us who've been unemployed more than 26 weeks...if you recall, those rations expired for weeks at a time last year, first at easter, then at the end of june, & again at thanksgiving, as they were being extended in short term fixes of a couple months each until the year end deal solidified them for this year...but unless they're extended before Dec 31st, the unemployed will start getting cut off every week as whatever tier of those rations an individual is on expires...

on the same day as the jobs bill was killed, the senate also took up & easily passed a bill charging china with currency manipulation, which would impose unilateral and broad-based tariffs against them; so instead of a jobs bill, we have political scapegoating likely as ill advised as the smoot-hawley tariffs were in the Great Depression, as everyone loses in a trade war; china's currency has been undervalued, but they had been letting the yuan float up slowly; their reaction to congress's action was to defiantly push the yuan lower...there is nothing unique in the way china controls it's yuan's value; 58% of IMF-member nations do the same; & while only 14% allow their money to float freely, even some of those, such as japan & the swiss, have recently intervened to hold theirs below certain levels...since 2005, when they first allowed the yuan to float to a limit, china's yuan has gained 30% against the dollar, at a even pace of 1/2% a month (except for a hiatus at the height of the crisis), which impresses me as a reasonable way to assure an adjustment with as little domestic dislocation as possible...& even if chinese goods were to suddenly become more expensive here, this country would be slow to retool its industry to produce those same goods domestically...

then on wednesday, the house approved 3 free trade deals, with colombia, south korea and panama, which had been languishing since the Bush years, which moved quickly through the senate so they could be signed by the president before the korean president's visit thursday...to clear the path for the passage of those deals, both houses also approved a renewal of the Trade Adjustment Assistance program, which will aid companies & retrain workers who lose their jobs to outsourcing to those countries...the trade deals are also expected to increase US exports to those countries by $13 billion...

i was quite surprised on thursday to see the ohio county i live in, Geauga, enter into a class action against MERS (Mortgage Electronic Registration System), MERSCORP, & its member banks, on behalf of all counties in ohio…you'll recall that the banks formed MERS in the 90s to get around the requirements (& fees) of state laws that required every mortgage (deed of trust) and note (obligation to pay the debt) to be recorded manually at the county courthouse where the real estate transaction took place...since it's inception, most every mortgage transferred has gone through this MERS system, and MERS has claimed to now hold title to roughly half of the home mortgages in the nation — something between 60 & 65 million loans...we've talked about challenges in several states as to whether MERS had legal status to foreclose, and the fabrication of documents used in that process, but the geauga lawsuit goes to a deeper problem...the complication that arose during the securitization process (wherein banks packaged the loans into MBS, then sliced & diced them into CDOs of multiple tranches) was that the electronic record keeping of the multiple rapid security transfers broke down, & no reliable paper trail was maintained...so the geauga county lawsuit addresses this problem, & charges that the "defendants systematically broke chains of title throughout Ohio counties' public land records by creating "gaps" due to missing mortgage assignments they failed to record, or by recording patently false and/or misleading mortgage assignments. Defendants' purposeful failure to record has eviscerated the accuracy of Ohio counties' public land records, rendering them unreliable and unverifiable -- damage to public land records that may never be entirely remedied" ...what we see here is that because of the banks slipshod record keeping, even those people who have been paying faithfully on their mortgages may not have clear title to their homes when their mortgage is paid off, possibly making it difficult for subsequent owners to get title insurance...it goes without saying that this is national problem; there is no way of telling from this lawsuit how many home titles may be clouded, but i know that this county & its politicians are very conservative, low-key & laissez-faire, so they wouldnt have acted if it werent a serious problem & they didnt have MERS dead to rights...

the mortgage servicers themselves will be coming under some pretty heavy scrutiny as well; the CFPB (Consumer Financial Protection Bureau), the dodd-frank agency inspired by elizabeth warren, has published a set of servicer examination procedures, so they may soon be faced with complying with the laws they have heretofore been ignoring...& realtytrac reported 3rd quarter foreclosure statistics. which were reported on by MSM with an array of confusing headlines; first time default notices were up 14% over the 2nd quarter, but total activity - default notices, scheduled auctions, and bank repossessions - was up only 1% over the second quarter; moreover, most of that was in August, during the surge of filings by BofA i reported on at that time, and it slowed again in September...overall, foreclosures fell 34% from a year earlier in Q3, and the average time to process a foreclosure in New York State, where courts have required that the foreclosing attorney certify the accuracy of documents, is now up to a record 986 days...

there werent any economic reports that i normally follow closely this week, but there was a surprising jump in september retail sales of 1.1%, led by new car sales, but even ex car sales retail sales were still up 0.6%...this flies in the face of declining consumer sentiment as reported by Thomson Reuters / UofM and Gallup, and a Pulse of Commerce Index which tracks diesel fuel, which is showing a 3 month decline an annualized rate of 10 percent; moreover, if retailers were optimistic, we wouldnt be seeing YoY declines of as much as 15% at the five busiest US container ports, at a time when christmas shipments should be coming in...

europe, of course, is still the elephant in the world's economic crisis room...& it continues to be frustrating to try to get a handle on what's happening; one can read on one hand of leaders like merkel & sarkozy coming to a broad agreement which they say will solve europe's problems, & on the other hand see slovakia block the expansion of the stability fund which would require they put up 12% of their GDP to help save greek pensions, which are 4 times more than slovak pensions...and the major reason the fund needs to be expanded would be to protect italy; yet italy's own contribution amounts to 18% of the fund, so they'd have to pony up more, too...and banks are expected to need more capital in anticipation of a greek default, but even the wall street journal reports estimates of needs as low as €7.6 billion to as much as €413 billion...greek bondholders agreed to take a 21% loss in july, now there's talk that may be as much as a 50-60% haircut...greece, portugal and spain are now all reporting they will miss their deficit targets, but it's easy to see why; imposed austerity left them with unemployment rates of 16 1/2%, 12.3%, & 21% respectively, & the pay has been cut for those who are working, so of course they're collecting less taxes! and as those countries are continuously bled by foreign investors, less remains in their domestic economies, & their downward spiral accelerates...in greece, refinery strikes have just about shut down transportation, garbage is piling up, and even the tax collectors are on strike because of pay & pension cuts, so it seems whatever their government has agreed to is moot...

yesterday, the protests against the banks inspired by "Occupy Wall Street" spread to at least 1500 cities in 93 countries; obviously, as i've been working on this & my link package while they were ongoing, i havent watched the news on them & cant report much...i know they started yesterday at sunrise in wellington, auckland, & christchurch, new zealand, and noticed as they followed the time change to sydney, tokyo, & hong kong; although generally peaceful, some violence had been reported in a takeover of a goldman sachs building in milan, and anarchists were said to be leading the demonstrations in rome...in this country, i've seen that much of the left establishment wants to guide OWS & Occupy Together into an agenda with specific demands on the system…i disagree; our system has been captured by plutocratic special interests, & solutions to our problems will not arise through our corrupt & dysfunctional politics...our generation blew it; we screwed it up, or let it be screwed up, for these kids, so we should just shut up & get out of the way; it’s time to let them decide where they want to take it from here; it’s their world now, & they have the most to lose if they get it wrong…i can only hope they can find it in themselves to reject most of the failed structures we've left them...

notes on the week ended Oct 8th

2011-10-10T03:58:00.001-07:00

before we even start looking at this months unemployment report, you should review the notes i wrote with last month's report on the methodology used by the BLS, so you know that any seemingly exact numbers they give us must be taken with a few grains of salt; namely: "the confidence interval for the monthly change in...employment from the establishment survey is on the order of plus or minus 100,000"; even so, with revisions & over time, we can get a picture of where we're heading...so, on the face of it, the unemployment report that came out friday wasnt all that bad, & was better than the forecasts leading up to it; in the establishment survey, BLS reported (pdf) that 103,000 jobs were added in september, arrived at by subtracting the 34,000 govt jobs lost from the 137,000 added by the private sector; the caveat is that 45,000 of those were Verizon strikers returning to work, so only 58,000 were really new jobs...but the (relatively) good news was that for once employment for july was revised up 42,000, and the change for august was revised up 57,000, the first time i recall positive revisions of that magnitude...ex the verizon strikers, which were subtracted last month, last's months dismal report of "zero jobs" was actually better than this months +103K after the revision...both the average workweek and average hourly earnings showed minor improvement...the sector gaining the most jobs was again health care workers, with 44,000 more than the last report; the sector losing the most jobs was again state & local government, down 35,000; the total decline in government payrolls in this recession is now the most since the winding down of the korean war...14 million of us are counted as unemployed by BLS definition, of those, 6 1/4 million have been without work for more than 27 weeks...in the volatile household survey, taken from a smaller sample, BLS reported the number employed rose by 398,000 and the total labor force rose by 423,000, of which 224,000 were those not counted in august who started looking for work in september; thus, with the numerator & denominator rising in tandem, the unemployment rate remained 9.1%...the household survey also showed an increase of 444,000 temporary or part time jobs, which means that full time jobs actually decreased by 46,000...this showed up in the U6 percentage, which includes those working part time who want full time work, which increased to 16.5% in september from 16.2% in august and now stands at its high for the year (see the adjacent chart from bill mcbride - other charts are indicated in the links below)...nonetheless, with more people having at least some work, the declining metrics we were concerned about earlier this year improved: the labor force participation rate increased from 64.0% to 64.2%, and the employment / population ratio also increased from 58.2% to 58.3%...

as i've mentioned before, most estimates are that we need at least 125,000 jobs per month just to keep up with the increase in the number of working age teens & adults in the population; so far this year we've added a total of 1,074,000 jobs or an average of just 119,000 per month, so we're not even treading water; our difficult situation is illustrated by the adjacent chart from the Atlanta Fed's macroblog (enlarge), which compares the 158,000 rate of job recovery in the 2001-2003 recession to the rate from the bottom of this recession, and to the rate of job addition in recent months; the 158k rate of 2001 would reduce unemployment from the present rate as shown by the red line; the green horizontal line shows that unemployment would not fall at all at the rate we’ve been adding jobs since february 2010; and at the rate we’ve been adding jobs recently, the unemployment rate would gradually rise as shown by the purple line…zero hedge takes it one step further, and computes that we would need to generate 261,000 jobs per month just to return to the weak pre-recession unemployment rate by the time obama’s hypothetical second term ends in 2016…but looking forward, we see nothing but gloom; according to the employment firm Challenger, major announced layoffs more than tripled from last month's, to a level not seen since the depth of recession in april 2009; the hedge on that is that the lions's share of the increase comes from a 50,000 troop reduction announced by the Army (since we can now kill anyone anywhere in the world from a remote compound in nevada, & never have to see blood or dismembered bodies, we dont need boots on the ground), and an announced job cut of 30,000 by the insolvent Bank of America...furthermore, a PNC Financial survey of small and mid-sized businesses owners showed that only 20% planned to hire in the coming 6 months, less than the 24% who so planned in the last such survey...

as long as i'm talking unemployment reports, i should also mention the preliminary annual benchmark revisions which BLS released last week...this is the first guestimate snapshot of the benchmark revisions which will be released in february and will show up in the unemployment report that month...the revisions are taken from the full collection of the unemployment insurance data, and therefore determines the final unemployment levels...over the last two years, i've become accustomed to this showing that all the reports in the preceding year had underreported unemployment (by over 900K in 2009), and i've got a few old rants about that to prove it, but this year the revision appears to be showing that payroll employment was underreported by 192,000 jobs over the past year...this will not show up in the monthly reports, but the increase in jobs will magically appear in february as if it hadnt happened...

even though it's clear that we have a crisis in which millions of americans are looking for work, having their skills erode, or working at a job below their capability, congress remains gridlocked on even the lame jobs act that obama proposed, and this report didnt produce headlines that would encourage urgency; it wasnt unexpected that eric cantor would declare the bill dead in the house, but even the democrats in the senate had been using it as leverage so they can get an ill-advised bill passed to crack down on what they contend is china’s policy of manipulating their currency, which they believe is the reason multinationals are outsourcing manufacturing jobs; again, this is a purely political ploy, as they want to use their support for it to run against china in the 2012 elections...late in the week harry reid did float a modification of the obama jobs bill, with the offsets in the president's proposals replaced by a 5% surtax on those with incomes over a million that would raise about $445 million; but as ive complained time & time again, there is not even a need to attempt to "pay for" any fiscal initiatives with offsetting spending cuts or tax increases at this time…a few weeks back, goldman sachs produced the adjacent chart, which shows the effect of fiscal policy since the beginning of 2009; you see the obvious boost to GDP from the first stimulus, but as that wound down state & local government cutbacks have been a drag on the economy, and even if the Obama jobs plan (the blue line) were to be enacted in full, it would only be enough to neutralize the effects of the other programs winding down…

among other economic reports out this week included both of the ISM (Institute for Supply Management) purchasing managers indexes; the manufacturing PMI was at 51.6% in september, up from 50.6% in august, with a solid uptick in the employment component of that index to 53.8%; the ISM non-manufacturing index, on the other hand, was at 53.0%, down from 53.3% in august, and the employment component of that was 48.7%, down from 51.6% in august; readings over 50% in both these indexes indicate expansion; in a separate report, orders for capital equipment rose 0.9%, the most in 3 months…the Fed reported that consumer credit contracted $9.5 billion to $2.44 trillion in august, the largest decline in 16 months; (those who worry about the Fed “printing money” seldom look at the similar effect of consumer credit) – last friday, the BEA reported that personal incomes fell for the first time in 2 years in august, and although spending increased 0.2%, in real inflation adjusted dollars it was zip…the best coverage of that Personal Income and Outlays report i’ve ever seen came from the economic populist this week, complete with 10 charts, if you want a detailed analysis…

this was also the week of the monthly report that has become the most interesting to me, the LPS Mortgage Monitor; i've covered it before; it quantifies delinquent mortgages & homes in foreclosure; in august, foreclosure starts were up 20% over july (you may recall reports BofA stepping up their activity in non-judicial states), although the total 2.15 million homes in the process was down 12% from last year...there were also a total of 4.25 million homeowners who had missed at least one housepayment; 2.38 million of those were less than 90 days delinquent, and 1.87 million loans were over 90 days delinquent...a total of 12.24% of mortgages were in trouble, & those in foreclosure numbered 4.11% of all mortgages...with banks in many cases unable to prove the right to foreclose, the length of time homes are in foreclosure continues to increase, with the average loan in foreclosure now having not paid on their loan for a record 611 days...

in other real estate news, corelogic released it's home price index for august, which is the not-seasonably-adjusted weighted index of the 3 preceding months used by the Fed; it showed home prices in the U.S. decreased 0.4 percent over the july report, the first monthly decline in four months; typically; home price reports going forward will trend downward as the prime summer home sales season ends; the weekly report from Freddie Mac had 30 year mortgages below 4% for the first time in history at 3.94%; 15 year fixed mortgages were also at a record low of 3.26%...the real estate firm Reis also reported on vacancy rates for three classes of commercial real estate for the 3rd quarter; the apartment vacancy rate fell to 5.6% from 6.0% in the second quarter and effective apartment rents were up 2.4% from a year ago; office vacancy rates declined slightly to 17.4%, with average office rents up 13 cents to $27.85 a square foot, still well below the average of 29.37/sq.ft prior to the recession, and the vacancy rate for large shopping malls reached its highest level in 11 years at 11%, only a tenth of a percent off the all time high vacancy rate for mall space...

the situation in europe continues to threaten to explode into another major worldwide financial crisis that could put us into a deeper depression; i’ve got links to what i feel were the several dozen most important stories at the end of this week's blogpost, if you want to read everything on it that i've collected...

you may have noticed that the MSM is now reporting on the occupy wall street & other demonstrations going on in major cities around the country; they also have become a hot topic in the econoblogosphere, with considerable discussion of what changes or policy might come out of them; they've also garnered support from two nobel prize economists, with Joe Stiglitz at the NY site speaking with the protesters; accordingly, i've added that coverage to my blog, & have even more links in the miscellaneous section at the end of my emailed package...i also posted occupy wall street / occupy together - livestream video & info here on MW666 this week; i dont have to know what they're for...i know what they're against, & thats enough for me to support them...

occupy wall street / occupy together - livestream video & info

2011-10-04T05:19:00.001-07:00

Watch live streaming video from globalrevolution at livestream.com

For current news and information go to OccupyTogether.org, OccupyWallSt.org, Adbusters.org, AnonCentral, “We Are The 99 Percent,” and NYC's Independent Media sites: The Indypendent and Gothamist. contributions can be sent to the following:

The UPS Store
Re: Occupy Wall Street
118A Fulton St. #205
New York, NY 10038
Money orders only please, cannot cash checks yet. Non-perishable goods only. We can accept packages of any size…currently low on food.

Here Be Monsters is broadcasting live daily @4pm eastern time on BlogTalkRadio with news and information on OWS.

notes on the week ended Oct 1st

2011-10-02T18:12:00.000-07:00

not entirely unexpectedly, the government will continue to run this week, and likely will do so for at least 6 weeks more after that, as the impasse over disaster relief funds was solved by adding $2.65 billion to the continuing resolution to fund the government until november 18th; the Senate stayed on monday to pass the stopgap measure, which was less than the $6.9B FEMA requested, but didnt include the offset cuts to the Bush clean car program that the house had wanted...since the vote in the senate was bipartisan, the house is expected to follow through; they also passed another short continuing resolution to tide the government till the 4th, so the House could approve that by unanimous consest without having to travel back to DC...

the postponing of the budget for fiscal year 2012 until Nov 18th seems likely to open a whole new can of worms at that time, since it will fall the week before the thanksgiving deadline for the 12 member supercongress to present their $1.5 trillion in spending cuts that was negotiated in the debt limit deal; moreover, by that time they should have an entire budget for 2012 on the table, not just FEMA emergency funds; whether they do or no remains to be seen; it took 7 continuing resolutions over 6 months to get a budget for this year, and there's no telling what kind of riders that the tea party might want to add in an attempt to control or influence policy...also, we've yet to see movement on obama's jobs bill (it hasnt even been introduced) nor his tax the rich "buffett plan"; another problem we might want to think about is that with the economy tanking, if the jobs bill were passed while tax receipts plunge, it will start to become likely that the debt limit could be reached again before the election next year - so much for the best laid plans...

in somewhat of a surprise, the administration has asked the supreme court to rule on the constitutionality of the health care reform law, known as the Affordable Care Act; specifically, they are appealing a decision by a 3 judge panel in the 11th circuit court of appeals in atlanta; as far as i know, that is the only ruling that has gone against the act; there have been at least two, maybe more, rulings by other courts that the law was constitutional; although i havent followed it closely, most of the challenges to the law involve the individual mandate, which requires individuals to purchase health insurance, which i always thought was just another sop to the insurance industry (my own not well articulated position during the health care debate was for single payer, to the left of kucinich; i would have abolished the insurance companies entirely & replaced it with something akin to medicare, which is less expensive) ...that individual mandate is also what the atlanta decision related to...

there was another major health care story as well this week; the kaiser foundation's annual study of health care costs found that family insurance costs rose 9% this year to $15,073; that's double what the cost for a similar insurance policy was a decade ago...the kaiser report also showed that lower cost, high deductible plans had risen to over 16% of health insurance plans; as recently as 2006, they numbered only 4% of plans...& even though most of the articles about the study clearly stated that as per kaiser only 1-2% of the increase could be attributed to the Affordable Care Act (pdf), i've already seen several posts laying all the health care cost increases at the feet of "obamacare"...

there were a few housing related reports out this week; new home sales for august were down 2.3% from july at a seasonally adjusted annual rate of 295,000; looking at the report from the census bureau (pdf), it seems they dont actually report the actual number of homes sold; even the regional figures are adjusted to that annual rate, which i find odd...even though both the total of completed homes and those under construction is at the lowest level since records were kept, the new home inventory, although down from the peak, is still at an unusually high 6.6 months of supply, and at the rate homes are selling, this is shaping up to be the worst year on record for new home sales (click chart) despite an incrementally higher population... competition from distressed properties on the market knocked the median new home sales price down nearly 9 percent to $209,100...with interest rates still moving in anticipation of the Fed's operation twist, both the 30 year & 15 year fixed mortgage rates were again at all-time record lows, at 4.01% and 3.28% respectively...

this week also marked the release of the popular case-shiller home price index for july (which is an average of prices from may thru july); affected by normal seasonal demand, the prices in the 20 major cities covered rose 0.9% from the june report; that's still down 4.2% from last years prices, and 31.8% down from the bubble peak; on a seasonably adjusted basis, bill mcbride reports the 10 city price index down slightly, & the 20 city index up slightly...case shiller reports prices up in 18 out of the 20 cities, but on a seasonably adjusted basis, prices only rose in eight...(WSJ has an interactive table of prices in the 20 cities, if anyone is interested)...recent reports from other indexes for july were comparable; both corelogic & FHFA reported prices up 0.8%, FNC reported prices up 0.1, & radarlogic reported prices unchanged in july...related to this home price release, i had the unfortunate experience of catching robert shiller being interviewed by a talking airhead from reuters...although he repeatedly told her that prices would likely be flat for years, and possibly fall further, she kept probing for when there would be a "recovery"...some of you have heard this from me before, but homes are not an appreciating asset any more than a car or other durable is, & they are no more like to "recover" to their former high prices than are dutch tulip bulbs going to recover to the prices they sold for in 1637...houses deteriorate over time & eventually are torn down, just as automobiles deteriorate & are eventually junked...originally, the reason houses seemed to appreciate in value was the inflation of the 70s; because money depreciated faster than houses, houses went up in price...if inflation was 100% per year, cars would appear to go up in price every year too; you could then buy a car & drive it three years & sell it for more than you bought it for...as shiller said, the history of house prices in this country (before the bubble) was that they barely kept up with inflation...measures of inflation expectations are now low; the expected rate of inflation over the next 30 years, as measured by the difference between Treasury Inflation Protected Securities, (TIPS) and regular treasury bonds, dropped to 1.85% this week; moreover, as we saw a couple weeks ago, household median income is down 6.4% over the recession, so there is less household money available to go into housing...

it appears that the mortgage fraud settlement with the banks negotiated by the state attorney generals & pushed by the administration is finally toast…california attorney general kamala harris, who had been on the fence, said she will no longer be a party to it; so with new york, delaware, nevada, massachusetts, kentucky, & minnesota now opposed, a national settlement is impossible…harris complained the banks wanted broad immunity from other claims that might arise, & she couldnt go along with that…the SEC has also launched a fraud investigation of several banks, including RBS & credit suisse, on securities tied to mortgage loans, JP Morgan & BofA were sued by german lenders for $4 billion for “knowingly providing false information to credit rating agencies” about RMBS that the germans were sold, & BofA is facing another $50 billion securities fraud suit over their merrill acquisition…i havent been mentioning it, but there have been ongoing decisions by various state courts of appeals as to the legitimacy of mortgage titles only recorded by MERS (electronic records); most states have ruled them invalid, but a California appellate court affirmed MERS right to foreclose, so it wouldnt surprise me to see MERS heading to the supreme court as well..

it's becoming increasingly difficult for me to get a handle on what's happening in europe...the seriousness of the situation seems to have finally gotten thru to the world leaders - they've been described as frightened, angry & visibly scared at their meetings by the financial times - yet every deal that seems to be making headway is denied by those who would approve it...at any rate, some kind of "leveraging up" of the EFSF, their bailout facility, seems to be in the works, but i've yet to see an explanation of that i could wrap my head around...& although an expansion of the bailout has been passed in germany, german polls show 75% opposition, so it may not survive the next election there - even if it should be approved by parliaments in all 17 countries; the latest is that slovakia is holding out...& more pay cuts & pension cuts have been imposed on greece, as well as a punitive property tax which will be assessed as part of their electric bills; if its not paid, the implicit threat is that their power will be cut off...so of course, the strikes in opposition to austerity continue in greece...& again, there are links to more than 80 stories & opinions on the situation in europe are at the end of this week's blogpost...

i want to close with a short personal story...every week, i receive news forwarded from legitgov (http://www.legitgov.org/# breaking_news) at my yahoo mail email address - this week's package included 3 links to stories about the protests in new york known as "occupy wall street" (https://occupywallst.org) ...i had heard that yahoo mail was censoring mention of those protests but it never occurred that it might happen to me; but what i encountered when i tried to forward that package was exactly what the video in this post from thinkprogress shows: Yahoo Appears To Be Censoring Email Messages About Wall Street Protests ... i was repeatedly confronted with a captcha, which i always completed correctly, yet i was continually blocked from sending that link package with the message "Your message was not sent. Suspicious activity has been detected on your account. To protect your account and our users, your message has not been sent." i was able to send other test emails from my yahoo account without hindrance, but not the one with "occupy wall street" in it...twitter had also been censoring mention of those protests; here's the post by yves smith where that is described: Welcome to the Police State: NYC Cops Mace Peaceful Protestors Against Wall Street...so once again, i am surprised by my own naivete...i thought this only happened to protesters in iran or china, but i guess i was wrong...our whole system system is geared to protect the banks; the people, the bill of rights, & everything else is secondary...
these wall street protests - which are going national - do not really fall within the purview of my blog, but i've accumulated links to a few of the stories about them that i've encountered during the week, and they're included in the miscellaneous links section at the end of my emailed links package, where i also deposit links on political & other stories that i encounter during the week that i think someone might be interested in...as i was working on this last evening, i had the live feed from the protests in the background, and as i understand it, their were 700 arrests; protesters said the police had tricked them, herding their march onto brooklyn bridge, and even escorting them partway across, only to trap them in orange police netting after they were all on the bridge...so if anyone's interested, there's gonna be a bunch of naive kids who will be needing bail money this morning...